NEW TECHNOLOGIES IN THE ENERGY SECTOR

1. NEW TECHNOLOGIES IN THE ENERGY SECTOR MÄRT OTS Director General of Estonian Competition Authority President of ERRA

2. PANEL 3: INTERNATIONAL EXPERIENCES AND COMPETITIVENESS WITH RENEWABLES

3. Crucial changes in the regulatory environment Electricity market liberalisation process in EU – main goal isto regulate natural monopolies Power generation and supply – free market, no tariff regulation Power networks, natural monopolies – strong tariff regulation remains Promotion of renewable energy sources (RES) in free competition Latest RES auctions in EU – competitive without any subsidies. Clear sign of technological development Removal of all subsidies on RES. RES generators should compete on free market Price of CO2 quotas reflect the actual costs Free competition is the best regulator - regulatoris neveras efficient as market A number of specifics: balancing responsibility; trade among different juristictions, capacity allocation, harmonisation of technical standards.

4. The regulatory environment in dynamic development Telecom market as a good example: Strong tariff regulation 15 to 20 years ago. Similar to tariff regulation on power networks today. Currently: Competition among different operators Network operators combined with mobile service providers Light hand (ex-post) type of regulation on third party access Development of technology is changing the regulatory environment.

5. Estonian case study on liberalisation of telecom market Until year 2000 the exclusive right forproviding fixedline telecomservices was granted to the incumbent operator Estonian Telecom. No regulation forcable TV distribution lines.Today there are up to three competitive lines to the customers providing different digital services Active competition - the signal is digital, no more difference which type of cable is in use In addition, the mobile internet is developing very rapidly-4G, 5G. Competition – no regulation needed In 2000-s 40 regulators engaged – today 5

6. The level of competition (1) Natural monopolies – the customer has no alternatives, it isinefficientto build aparallel network. Power networks Water supply Gas networks District heating in the Nordic Region Air Navigation Centre Etc. Free market: electricity and gas generation and supply. Will technology change this picture?

7. The future of utilities Water – the oldestutility (natural monopoly) in history, sinceancient Rome. Very simple technology. Power networks – crucial in modern life, but the power network is the most complex infrastructure, complex technology, only 100 years of history Autonomous supply sources: solar panels, small scale CHP-s; etc. The future of batteries. Whydowe need the complex network? Natural gas – similar to water networks. Simple technology, accumulation capacity. District heating or cooling – simple network, accumulation capacity Good example the regulation of telecommunication networks.

8. Subsidies on renewables, rapid changes in technology Not always asuccess story Increase of renewables is reached by additional burden on the customers Feed-in tariffs Exemption from balancing responsibility Priority dispatch Long term power purchase contracts with fixed tariffs Etc. The regulator must follow the actual trends oftechnology development andbeactive on implementation of advanced models; followthe market signals on investmentcosts, generationpricefrom RES.

9. Cost on renewables has fallen faster than expected Source: NationalRenewableEnergyLaboratory (NREL) StephenWoodhouse, Energy in Transition 18th ERRA Energy and InvestmentConference

10. Cost on renewables has fallen faster than expected Source: NationalRenewableEnergyLaboratory (NREL) StephenWoodhouse, Energy in Transition 18th ERRA Energy and InvestmentConference

11. Lessonslearned – Estonian case study Long-term feed in tariffs scheme for 12 years to guarantee the investments inthe sector (2007 -2018) Overcompensation of RES, customeris paying 20% premium for power generation Administrativelyimpossibleto calculate the appropriate subsidy Renewables share increased, but with high burden on customer tariffs New auction based subsidy schemesince2019 Regulator’s position - no subsidy needed, RES are competitive on the market

12. Share of renewables in power generation ECA Report on Electricity and Gas Market 2018

13. End-user tariff in Estonia

14. The regulation of power networks in the future StephenWoodhouse, Energy in Transition 18th ERRA Energy and InvestmentConference

15. The regulation of networks in the future Currently: classicaltariff regulation for power networks,strongtariff regulation Regulatory Asset Base (RAB) WACC defined by regulator Efficiency gains and savings on OPEX and CAPEX 5-years RPI-x model Competition among DSO-s? Customer choice whether to connect to DSO or be self-sufficient using energy storage?

16. The regulator shall be flexible and to follow the actual trend on the market Case study from Nordic Region Customers free choice betweendifferent heating sources: District heating (DH), electrical or gas heating, heat pumps, etc. Today very clear target for the cities: to be carbon neutral in the heating sector. The best option – using biofuel in heat generation DH is the only allowed heat source and network is natural monopoly. Strong tariff regulation is needed District cooling in other regions

17. The role of digitalisation and regulation Information on generation-consumption,On-line metering Load forecast, balancing Balance responsibility of RES. Load Forecast of variable power sources: solar, wind. Using portfolio effect – including generators, consumers to the portfolio. Customers participation on power and balancing markets. Short term power trading. Balancing period 15 min by 2025 in EU. Smarthomes Consumerhasaccesstoinformation aboutown consumption and billing Networks DSO and TSO. Grid planning and operation: fixing of Network outages Etc.

18. The role of digitalisation and regulation Smart metering-regulators are too hesitant to support the introduction of smart metering Burden on customers tariff. Old-fashioned thinking based on traditional tariff regulation Network efficiency, Network losses, power supply interruptions Estonian case 100% of smart metering byJanuary 1st2017 No additional burden to the end-user tariff Reduction of commercial losses. Closeto0 thefts and metering errors Better network maintenance Better service quality

19. Smart metering in EU, data platforms DATA EXCHANGE IN ELECTRIC POWER SYSTEMS ENTSOE 2017

20. Smart metering in EU DATA EXCHANGE IN ELECTRIC POWER SYSTEMS ENTSOE 2017

21. Cybersecurity and dataprotection (1) Addressingcybersecurity and dataprotection is crucial in thedigitalisation of energysector Digitalised energysector is exposedtonewkinds of threats, cyberattacksthatmayjeopardisethesecurity of energysupply Risks must beanalysed and suitablemeasuresprepared Update software and hardware, consideradditionalmeasures Monitor and follow relevant standards Collaboration and communicationframework for crisesand incidents

22. Cybersecurityand dataprotection (2) Different solutionsamong EU MemberStatesand ERRA members Data protection in EU - Specific rules, central supervisory body in each MS Different approaches in cybersecurity - either centralsupervisory body or energy regulator Estonia. Supervisoryauthorities for both cybersecurity and data protection. Energyregulatormustcontrol the reasonability of investments and operational costs.

23. Biggest challengefor regulators – to protect the customer and keep the electricity bill on reasonablelevel StephenWoodhouse, Energy in Transition 18th ERRA Energy and InvestmentConference

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