The Acer conundrum

Debate has begun in Norway on the EU’s fourth energy package, that dates back to 2019. Listen to a discussion on the key elements of the legislation and why they are proving controversial. The perceived powers of the EU regulatory body Acer are of concern to many, but have they been misunderstood?

Host: Snjólfur Richard Sverrisson, Editor-in-Chief, Montel

Guests: Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo; Olav Vilnes, Editor Nordics, Montel. 

Transcript

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 0:20

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. In today's pod, we discuss a regulatory issue that could have explosive consequences In Norway four years ago, opponents of Norway's membership of the European economic area or EEA, mobilized to protest against the transposition of the eus third energy package, 10 years after it was launched in Brussels. Now it's the turn of the fourth energy package, also known. As the clean energy package, and it could cause ripples in the country's political landscape. But what are the controversial elements of the legislation and why could they have serious implications? Helping me, Richard Sverrisson, to discuss Acer and Norway`s transposition of the fourth energy package is Catherine Banet, law professor at the University of Oslo and Olavv Vilnes editor Nordics at Montel. A warm welcome to you. Catherine and Olav.

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 1:16

Thank you, Richard.

Olav Vilnes, Editor Nordics, Montel: 1:17

Yeah, thank you. Thank you. Richard.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 1:18

If I can start with you, Catherine, if we can talk about the background. Why do we need a fourth energy package? Isn't the third one enough?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 1:26

At that time we were in a very particular situation that is closely linked to the energy transition, and the package was proposed in 2016 and was completed by the publication in the official journal of the EU in June 20. In short it aim at facilitating the clean energy transition. But if you think back what happened at that time in 2015, we have the Paris agreement. Then we have a series of political goals and policy goals adopted at the EU level that needed implementation. So the background for the package, the fourth energy package, so the UBM commission preferred to call it the Clean Energy Package for. All Europeans were closely linked to this path towards the bigger share that clean energy transitions, technologies and as well renewable energy technologies in particular will play in the energy mix. The fact that you need to implement their, the commitments under the Paris Agreement and to ensure that you have the right legislation, not only in terms of market legislation. For adapting to a bigger share in the energy mix for renewable energy sources. So we have this as a background. We had as well a few years before discussion about the creation of an energy union. And that came also in 2015. So it needed to be followed up and all the policy targets for 2030 that we are now discussing in 2040, but at that time it was implementation of 2030 Target.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 3:08

So what are the main elements of the fourth energy package or the clean energy package? Then Catherine?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 3:14

Clean energy package for all Europeans is composed of eight legal acts and two non-GI legislative document. And we have some of these act that are a revision. Of previous acts, such as the electricity directive, electricity regulation, AC regulation, renewable energy directive, and we have new acts related to risk preparedness and governance of the energy union. We also find revisions of the energy efficiency directive and energy performance directive just to stress a few elements of this legal acts. We find in. Important elements related to already. And we discussed a lot already market design during the past year. But we had already a discussion on market design in order to adapt to the bigger share of renewable energy sources to make distribution system operators more in line with their new role at the decentralized level and empower consumers. That's where reinforce mechanisms around preparedness. With that being said, it was only on the electricity side because gas was not part of this package.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 4:27

If it's bringing Norway in line with the Paris agreement, if it's accelerating the rollout of renewables, why is it so controversial in Norway? Olav?

Olav Vilnes, Editor Nordics, Montel: 4:43

It's more like an EU relationship to EU at stake. I think the aims of the Clean Energy package, it's very similar to the aims of the Norwegian energy policy. It's about boosting renewables. It's about having an efficient market to get all this renewable electricity into the market. The problem is I understand is that it, it is this fear that Norway eventually should lose. Sell sovereignty over its own energy policy. The decision to decide on the production mix to decide to decision or the power to decide on the cross border cables, for example. I think there is an underlying fear among some part of society that this is just a process that is ongoing and eventually we will lose control.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:23

Okay, so it's the fear of losing sovereignty over the own of Norway's resources. Basically,

Olav Vilnes, Editor Nordics, Montel: 5:28

I think that is the main reason for the opposition. I think they, it is in a way, it's just the continuation of the you had two referendums in Norway, one in 1972 and the other in 1994 where the people said no to EU membership. And for them this is, these, whenever there is a new package coming up, there's a new opportunity to raise that objection. We do not want more integration. We have actually voted no to more integration.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:48

So the voices of the opposition, it's not so much to the what's coming in terms of energy, but it's more in terms of the whole eu in and of itself really.

Olav Vilnes, Editor Nordics, Montel: 5:57

Yes. Yeah.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 5:58

Would you agree here, Catherine?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 6:00

Yes, absolutely. I think what we hear is very much related to national concerns. And by the way, we also hear similar comments in the EU member states when it comes to new proposals from the EU in particular taking into account the speed of the reforms during the past few years at Brussels deciding over this and that. But in the specific case of Norway, we find as well a lot of misconceptions. And the role of a ON itself is a symbolic case. And I think it's it's important here to clarify this misconception. For example, there is no a, a agreement. We have a joint committee decision for the incorporation. The energy package. We don't have AER agreement. When we talk about the decision that as a could take, there is a memorandum of understanding that is non biding between as a and aer. I think there, there is a lot of misconception as well to clarifying, but it's also very much related to national concern.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 6:57

I think we can, maybe we stick with this.'cause this is the main point. It's almost become about aa hasn't it? The dispute, the discussion in Norway, Olav?

Olav Vilnes, Editor Nordics, Montel: 7:06

Yeah. And it's, and as Catherine said it's very strange in a sense because you criticizing the referee here for, because every, when you have legislation at the European level, someone have to monitor it. And a is just an agency to monitor that. Everyone is obeying to the rules. And I think for every small state. It's good to have a, an authority that actually rules and make sure that everyone follows it. If not, it'll often be the largest powers that actually decide. So for Norway, a in that sense, a good thing, I don't know why Aras become like the name maybe it's easy to write. It's an easy, it's an easy label to put on a very difficult package. Like the clean energy package is hard to be against the Clean energy package. But it could be against Acer.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 7:43

Exactly. Exactly. So what is more the scapegoat here that sort of yeah. The punch bag, if you like, for the anti EU lobby in a way. All of what does the anti-EU lobby or the opposition to generate to the Norway membership of the European economic area what do they see as Acer being what's the view of Acer?

Olav Vilnes, Editor Nordics, Montel: 8:01

The view of Acer, from the from anti EU movement. I think the, if you look at that, the government at the moment, you have a center party who's against eu, and they always gain on being against the eu. So for them to give power away from any eu. Entity is not good for their for their support among their core cons core voters. I think for them it's just like a, is an example of a supernational authority from an EU agency. They don't want that, so it's quite easy for them to be against it. But as long as they're in government, it's also very hard for the Labor Party to proceed with EU or to adopt new EU legislation. And then we will have this in a stalemate in a way. I think we had a, there was a story the other week that was 64 parts of legislation now from EU energy issues that have, that are, have not been yet been part of Norwegian law. Because of, delays and so on, some of them back to dating from late 20 2011.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 8:53

But so Catherine, if you can say, what is actually Ace's role here? The misconceptions are there, but what can I actually do? Is it, like all I've said, it's like the referee it's the judge it case. There are, people in a dispute maybe between TSOs or between regional or national regulators.

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 9:10

Exactly, and as the title of the agency says it is an agency for the cooperation between regulatory agencies at the EU level. So the main purpose is to ensure that there is a good cooperation with the goal. Of ensuring there is cross border trade and that we have a fully integrated energy market. So we do have some reinforcements of competences with the clean energy package. That's true. But it's building on the competence that was already given in the third energy package. For example, we have a reinforcement on the responsibilities, on the coordination with national regulatory authorities. We have additional tax. To that purpose as well. The AER will have regulatory oversight of regional coordination centers, rccs, that play a role quite important role for the coordination of transmission system operators, so the TSOs, and here Acer will have a role in terms of providing guidance. They do have a role when they as well clarified any conflicts between the ta, so not on their allocation of cost when they develop cross-border infrastructures. They also have a reinforced oversight of generation, adequacy and risk preparedness methodologies. So this is also an addition through the Clean Energy Package. Another important one is the role that Acer is playing now in monitoring and contributing to the implementation of what is called network codes and guidelines. So this has been strengthened and as well in, in the context of terms condition methodologies. With the clean energy package. Now Acer becomes the default decision makers for the U-P-M-T-C-M. So not national and regional, except if parties do not agree, so they can escalate it to Acer. But here, Acer, when it comes to this UPM, TCMs has a default decision role. So we have a reinforcement of certain of the competencies building on the previous ones.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 11:22

This to me, Catherine, sounds very much like it's a technical role rather than an attack or an attempt to take over the sovereignty, if you like, of national resources. It seems a long way away from that.

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 11:34

That's absolutely true. And the role in of AER is defining the AER regulation. It is very focused on cooperation between national regulatory authorities with the goal of ensuring the EU objectives related to the internal energy market. We. Know that within that framework, they can have a broader room of appreciation that was demonstrated by a recent decision in earlier this year in February. That was the Austrian power agreed decision where they confirms that Azer has enhanced powers when it comes to individual decision, but that's on cross border issues when the case has been referred to them. So within that clear framework, Acer has. Powers, but it is, again, according to this competence that has been defined in the legislation.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 12:31

So it needs to be referred to them in a way. I know the Nordic countries are generally very good friends, Olav, but there are instances where there have been disputes, especially, more recently, maybe a year or so ago between Norwegian and Swedish TSOs. And it, it's probably quite good to have a referee or an impartial judge who can come in and rule on one side or the other.

Olav Vilnes, Editor Nordics, Montel: 12:50

Yeah, you have a current one as well between Finland and Sweden regarding their financial markets because they, they have different attitudes on how to different views on how to make sure they have a liquid financial market. The Fins want financial transmission rights on the borders between Sweden and Finland while, while the swes want they want the current system to work just to reinforce that with some TSO bidding like the, these contract EPA contracts that they normally use. So that's a, that's an example of a disagreement that they've just asked a AA to solve.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 13:18

So it's not that scary is what you are saying here, but why, how was the Clean Energy package received in Europe? Was it as controversial as it is now in Norway and will probably be in Iceland as well.

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 13:31

The Clean Energy package was an ambitious one already at that time. Know we are more familiar with this ambitious big package in particular after the fit for 55 1, but that was already an ambitious one more than 5,000 pages of legislation. It was fundamental for enabling the energy transition when it was presented. The UPN Commissioner Mr. Cante said it's just a further development of the rules, so maybe reassuring the member states that it'll not be a revolution, and that's only the phase two of the energy transition and market reform. While we are waiting at phase three, that was his words. But in practice we find some very important reforms in the clean energy package that were discussed by the member states. And sometimes subject to of course negotiations between the parliament and the council. We do find, important provisions, for example, on the wool energy world sell energy market in terms as well of bidding zone reviews or the fun elements as well. Price formation to have even more, price-based formation of prices. We see now that with the energy crisis we have been through we are coming a bit back to these ideas. There was as well elements related to new principles for resource adequacy. What kind of assessment methodologies we should have. Another element that is always controversial is the need for capacity mechanisms. For a long time, they have been perceived as the exception. Now we see that with the reform that we are currently discussing we have further emphasis on the permanent use of capacity mechanisms, other elements related to cross border trade, how to address bottlenecks on the border, where as well key in their pain energy package. Other elements related to demand response flexibility were already there the rights of. For their energy communities, more dynamic electricity price contracts. So we find many fundamental elements that were discussed by the member states. But in terms of implementation, that is the role of the commission to ensure full implementation. There's something that they follow up through the governance of the energy union, and that is probably something that also is a turning point and further tool is how to use the mechanisms that were establishing this new governments regulation on the energy union to streamline the forts of the member states in order to reach the EU goals because we move from national goals to eu. Or targets with this clean energy package.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 16:19

Absolutely. So how long does Norway have before it needs to transpose the directive? It can't just postpone forever here. Can it Catherine?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 16:26

Yeah. So if you allow me, first we need to distinguish between incorporation and transposition. So we have the first step of incorporation into the EEA agreement here. There is no deadline. There is no obligation as such to incorporate a new EU legislation. But many of these acts in the clean energy package are revisions of already incorporated legislation. So we just deepening the gap in. But there is no deadline, and it is subjected to the negotiations between ea states and the EU side, and there are two sides of it. However, some basic principles related to virginity of the EA agreement, reciprocity and loyalty will, we'll apply here and we should have a dynamic agreement. We should not wait too long before incorporation. And this is fundamental. Once it has been incorporated into the agreement when it comes to directives then they will need to be trust bo. At the national level, and then the joint committee decision will set a deadline. So here we will have a deadline.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 17:38

That's very, that's a very important clarification. So thank you for that, Catherine. But Olav, where are we in terms of politics here? Where is it on the, it's, you said the current government, which is made up of the Labor Party and the center party. But also with the support of the socialists left although another, an active member of the cabinet. How do you see this playing out? Because that this's starting to be discussed now. It's coming on the table, it's being brought up into the public domain. How do you see this playing out over the, over this year in the coming years?

Olav Vilnes, Editor Nordics, Montel: 18:06

It's been better and better Recently we had the energy ministry, there was some reports that they are. Working on implementing it regular, like the on on, on a case by case. So they're looking at it but I think politically the center party has clearly stated that they can't accept any introduction of this directive as long as they are in government. So it would mean break up the government. The most likely thing now is that they just postpone this to the next election, which is in two years time, and then it'll up to the next government to, to decide on whether to. Go to parliament and rat fight and make it part of the agreement. But that's so they're just of kicking it into the long grass, kicking it into the long grass. Yeah. That, that that's the most likely outcome. Unless you have a government crisis and you try to make it faster. And I don't see any reason I did, they probably won't do that because there are more important things maybe for the government to do. They, they. They probably want to stay together if they can, even though their opinion polls aren't that good.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 18:56

But as I said in the introduction, it has potential to be quite explosive, not just within the current government, but within Norway more generally?

Olav Vilnes, Editor Nordics, Montel: 19:02

And there, there is another element there. I think one of the biggest trade unions recently said that Norway should actually. Exit Acer. That was their statement. So that it means that they want nowhere to get out of the third package, just in a way break out of the EU Energy Market corporation, which again, would maybe put the whole EEA agreement in danger. That will probably not happen, but it's, it shows that there is a very strong resistant resistance. Both within the trade unions and some of the political parties towards the whole concept of a unified or a United European energy market.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 19:35

What's your take on this Catherine? Can you literally just exit Acer? What does that mean in practice?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 19:42

There is no exit of Acer without, getting out or stopping implementing the third energy package because it's part of the third energy package. And then you refuse as well incorporating the next pieces of legislation. And after the fourth energy package, we have the fit for 55. Package and then we have the Repower EU package, and then we have the hydrogen and decarbonized gases package and the market reform. So we are waiting now a long list of legal acts from the U2 B incorporated. It'll be a question of basic choices as Olavf mentioned regarding Norway's position towards a European corporation under the EA agreement. And as well what which voice will have, which weight will have the different actors on the industry side that also need. These common rules to compete on a level playing field and put their services and product on the market. And that needs to be balanced with more, with other views on European corporation.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 20:48

Absolutely. What would happen if Norway didn't implement it? Once it's incorporated into the EEA agreement.

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 20:53

Of course we can take the example of offshore wind developments. We are in a situation where we need clarity in terms of what is the applicable legislation to not only radio infrastructures that could develop under national legislation, but as well cross border infrastructures such as hybrid project. And here you have a huge question in terms of what kind of legislation will apply both under EE law, but as well between the countries that will connect their assets through a hybrid project. If you don't have the same rules, then you're not talking the same language and you cannot. Accomplish the project. So here you have different choices. Either you incorporate the European legislation and you follow the same rules, so it's clear, it's harmonized. Otherwise, you can't anticipate having the same rules. You can't make bilateral agreements between each countries and then with other countries around the North Sea. It's getting very complicated and you may risk it to lose investments. Because project developers need foreseeability and we need, again a level playing field.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 22:07

Yep. And I think that's an important, you risk the fragmentation and then, the lack of predictability and more uncertainty, which is something that investors in certainly generally do not like, and especially into renewable energy. I think that's a very good. Point and and all, I've just a final question really. Do you think this whole issue could open up a whole Pandora's box in Norway in terms of that it generates not just the issues around energy and the rollout of renewable energy and the standardization and harmonization of EU rules, but more that it becomes, you are either for the EU or against it.

Olav Vilnes, Editor Nordics, Montel: 22:44

Yeah, I think it's been like that for many years. I don't think it will. I don't actually think this situation will be that tense. I think it'll always, it will eventually calm down a little bit. This it's up now in the, it's a big discussion now about the, it was about a huge debate about the third H package. It's been far less talk about the fourth, but I think the, depends a little bit on the government constellation as well. If you have, if you, if this current coalition with the center party supported by the social left continues for the next six, four years after the election, then suddenly you may be in a more difficult situation than if you have A-A center Right government. But it's still I think it's so much at stake that eventually they will take part, they will implement it and we'll remain part of the inter internal market.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 23:27

Do you share that view Catherine?

Catherine Banet, Professor of Law, Head of Department of Energy and Resources Law, University of Oslo: 23:29

Yes. I share the view and the recent judgment by the Supreme Court in Norway, by the end of October also provides some fresh air to the, government if they want to move forward with the incorporation of the fourth energy package, clean energy package and everything that is waiting. So it, it will be both a question of political decision for this government, but as well strategy for the incorporation of all these acts that are waiting. You can act differently. You can't choose to prioritize some of these acts instead of. Taking a package at the time. Another legal act that will be very important for Norway is the net zero industry act that we're currently negotiating at the EU level. And for example, for carbon capture and storage for offshore wind technologies, that this is a fundamental act to speed up the industrial value chains. These are examples of legislation that will be important to incorporate in the agreement. And the decision is again how to handle the backlog and deal with the political situation.

Snjólfur Richard Sverrisson, Editor-in-Chief, Montel: 24:42

Catherine and Olav, thank you very much for being guests on the Montel Weekly podcast.