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Energy regulators must provide investor security for a climate-friendly energy transition

The Energy Regulators Regional Association (ERRA) has published a report showing the interest and willingness of its members to play an active role in the decarbonisation process. Indeed, to limit global warming to 1.5°C, one of the key changes needs to take place in the energy sector. In particular, significant emphasis has been placed on decarbonising the power sector.

Many national governments have already adopted measures to increase the share of renewable sources in their energy portfolios and put in place energy efficiency measures to curb the demand and mitigate adverse environmental impacts. Subsidies and financing programs have also been put in place to encourage efficient use of energy, targeting the industry, buildings, appliances and transport.

According to ERRA’s report, based on a survey in which 23 regulators took part, one of the main actors to drive and monitor these changes are or could be energy regulatory authorities.

“Energy regulators are central in proposing and implementing energy policies that can support the process, overseeing the sector and the directions of its development and also enforcing solutions that can facilitate the transition towards a less pollution-intense economy,” reads the report. “In this capacity, their role evolves by reaching new levels of engagement and responsibilities related to the needs of the revised energy architecture and climate action targets.”

ERRA’s members have embraced this key focus area as one of the workstreams in the Association’s annual work plan for 2021-2022.

Approved national targets to reduce GHG emissions

As shown by the survey, apart from Serbia, all countries reported having official national targets to reduce greenhouse gas (GHG) emissions, to support energy efficiency and to increase renewable deployment.

Energy regulators

For example, Azerbaijan has a goal of reaching a renewable share of 30 per cent from total installed power capacity by the year 2030, which implies the installation of new renewable energy plants with a total power capacity of 1,500 megawatts (MW). Or, the integrated energy and climate plan of Bulgaria has set the target of reducing GHG emissions by 49 per cent by 2030. Hungary aims to reduce its GHG emission by 40 per cent until 2030 and reach climate neutrality by 2050. Also, the Romanian plan is all about renewables with the plan to add 822 MW of wind installed capacity and 994 MW of solar installed capacity in 2022.

Currently in Serbia, targets to reduce GHG emission are not defined. However, the government is already working on the drafting of the new strategy for the development of the energy sector for the period 2021-2030 and the National Energy and Climate Plan. The Ministry of mining and energy has the obligation to prepare and adopt these two documents till February 2022.

The role that regulators don’t have but would like to

Nevertheless, the regulators of the same countries in which governments have clear national plans did not report to have an explicit mandate to identify and implement measures that contribute towards decarbonisation and mitigating climate change implications. And their role is crucial as most of them have either a direct or indirect role in electricity network planning and development as well as a role in renewable energy sources deployment, understood as, among others, responsibility for supporting schemes, design of tenders, or licensing.

For example, Moldova’s ANRE takes care of the calculation and approval of feed-in-tariffs (FiTs) and ceiling prices, it confirms the eligible producer status for small producers and sets the quotas for the distribution of energy purchased by the central electricity supplier. Or, Poland’s URE supports producers in RES in the following support systems: the certificate of origin system, the FiT/FiP system, the auction system and (supplementing) the guarantee of origin system.

These roles led to specific achievements like Hungary’s RES tendering scheme that was successful three times in a row. Or the fact that a part of small eligible Moldovan producers already started to deliver electricity to the grid at FiT.

Also, digitalisation must be a great part of the energy transition. However, apart from Hungary and Serbia, most ERRA members stated to have only an indirect role.

Energy regulators

In particular, Hungary’s HEA examined in 2018 the issue of the introduction of smart metering with the help of an external expert. Based on the expert examination, HEA made a legislative proposal to the Ministry regarding the domestic introduction, as a result of which the amendment of the Electricity Act entered into force in 2020.

The main challenges

Asked about the three most notable obstacles hindering decarbonisation, Estonia’s ECA pointed out that some of the district heating companies are producing heat from the oil, therefore decarbonisation needs investments in the district heating sector and new investments could increase tariffs. Lithuania’s NERC reminded that there may be high energy prices during the transition period, so not all consumers will be able to adapt quickly without state aid. Poland’s URE mentioned the high share of coal-based energy generation.

The report concluded that energy regulators should provide investor security for a climate-friendly energy transition. Besides public funds, it is private capital that will provide the majority of the needed investment into energy transition. Clear, sufficiently ambitious and integrated climate and energy policies should be coupled with regulatory credibility, predictability, accountability and innovation in implementing those policies to ensure sufficient investment for a timely energy transition.

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