Commission Decision (EU) 2024/560of 8 December 2023granting the Kingdom of Spain a derogation from certain provisions of Regulation (EU) 2019/943 of the European Parliament and of the Council and of Directive (EU) 2019/944 of the European Parliament and of the Council as regards the Canary Islands(notified under document C(2023) 8638)(Only the Spanish text is authentic)(Text with EEA relevance)
32024D0560
European Union
§ Article 40
Article 40(4) to (7) of Directive (EU) 2019/944
(61) According to Spain, the lack of effective competition in the generation segment prevents the establishment of undistorted electricity markets in the NPT. In particular, it prevents the transmission system operator from establishing and operating a balancing market in the Canary Islands, including procuring market based non-frequency ancillary services.
(62) Given the absence of a balancing market and of a market-based procurement of non-frequency ancillary services in the Canary Islands, the Commission considers that derogations from the obligations in Article 40(4) to (7) of Directive (EU) 2019/944 in accordance with Article 66 of the Directive are justified.
5.2.3.
Chapter II of Regulation (EU) 2019/943: General rules for the electricity market – Articles 3 and 6, Articles 7(1), 8(1) and (4), Articles 9, 10 and 11
5.2.3.1.
The Application
(63) According to Spain, the lack of effective competition between generators prevents the establishment of non-regulated electricity markets. The dispatch decisions in NPT including the Canary Islands are based on technical and economic criteria for which it is not always possible to apply market rules. Additionally, Spain explains that price formation in the NPT is not based on the offer and demand in those territories, but on that of mainland Spain, to prevent that consumers in NPTs pay the extra costs of electricity production in those territories.
(64) Based on those facts in previous recital, Spain requests a derogation from the following provisions of Article 3, first paragraph, of Regulation (EU) 2019/943:
points (a), (b), (o), (p), since according to Spain prices in the markets at stake cannot be freely formed based on offer and demand, and there are no forward markets operating in these territories;
point (c), since Spain considers that the market rules that facilitate the development of flexible generation and demand might not be applicable in the territories;
points (e) and (k), since according to Spain generators are not responsible for selling the electricity they produce (it is instead the task of the system operator to decide which power plants should be dispatched) and cannot submit aggregated offers;
point (j), since Spain considers that the storage strategy in these territories might require that energy storage has priority and is not on equal footing with other generation facilities;
point (n), for which Spain notes that in principle the entry and exit of electricity generation could be based on the undertakings’ assessment of the economic and financial viability of their operations, but that in practical terms it is not possible for generation companies to participate in the system without being granted a regulated payment regime by which the generation costs can be covered.
(65) Regarding Article 6, Articles 7(1), 8(1) and (4), Articles 9, 10 and 11, Spain highlights that although the electricity system in the NPT is governed by a dispatch system that operates in a way similar to the Union electricity markets, for example with daily and intraday dispatches, it constitutes a regulated system. The purchase price is based on the mainland price and not on the recognised costs incurred by generators in carrying out their electricity generation activities, including the balancing services. On this basis, Spain requests a derogation from Article 6, Articles 7(1), 8(1) and (4), and Articles 9, 10 and 11 of Regulation (EU) 2019/943, since there is no balancing market in the non-peninsular territories including the Canary Islands, and neither is there the possibility of integration with the Union day-ahead and intraday markets due to their isolation.
(66) With regard to Article 7(1) and Article 8(1) and (4) of Regulation (EU) 2019/943, Spain notes that due to the isolated nature of the NPT, dispatches are operated independently of the mainland and Union markets – aside from the reference price for the purchase of energy being based on the mainland price – with the dispatches being based on hourly schedules.
(67) Likewise, in accordance with the above, the integration of forward markets, technical bidding limits and the value of lost load referred to in Articles 9 to 11 of Regulation (EU) 2019/943 are considered by Spain as not applying to dispatches in the NPT.
5.2.3.2.
Assessment
(68) Concerning the request for derogation from Article 3, first paragraph, of Regulation (EU) 2019/943, the Commission considers that:
since electricity prices in the Canary Islands are not formed following a market-based approach but via a special regulated mechanism whereby the system operator carries out the generation dispatch for each of the isolated electricity systems, a derogation from Article 3, first paragraph, points (a), (b), (e), (k), of Regulation (EU) 2019/943 is justified;
since there is no forward market in the Canary Islands and the system operator’s dispatch involves weekly, daily, intraday forecasting as well as deviations in real time, a derogation from Article 3, first paragraph, points (o) and (p), of Regulation (EU) 2019/943 is also justified;
while acknowledging that the current regulated system and particular characteristics of the Canary Islands might render more difficult the development of more flexible generation, low carbon generation and more flexible demand, the application of the market rules is still required to incentivise their development to the extent possible. Thus, the Commission considers that a derogation from Article 3, first paragraph, point (c), of Regulation (EU) 2019/943 is not justified;
§ Article 3
Article 3, first paragraph, point (j), of Regulation (EU) 2019/943 does not prevent that priority is given to energy storage projects in the Canary Islands, if for example, those projects are considered as the best option to ensure security of supply in the Canary Islands. Thus, the Commission considers that a derogation from Article 3, first paragraph, point (j), of Regulation (EU) 2019/943 is not justified;
in relation to Article 3, first paragraph, point (n), of Regulation (EU) 2019/943, the entry or exit of an undertaking in the market for electricity generation should depend on that undertaking’s assessment of economic and financial viability, taking into account the possibility to receive the regulated remuneration mentioned in recitals 15 and 16. Hence, a derogation from Article 3, first paragraph, point (n), of Regulation (EU) 2019/943 is not justified for the Canary Islands.
(69) With respect to the requested derogation from Article 6, Articles 7(1) and 8(1) and (4), Articles 9, 10, 11 of Regulation (EU) 2019/943, those provisions refer to requirements regarding the forward, day-ahead, intraday and balancing markets. Based on the information submitted by Spain, it appears that those markets cannot be implemented effectively in the Canary Islands (recital 12), considering the particularities of the electricity systems in this territory. Hence, the Commission considers that a derogation from those provisions is justified.
5.2.4.
Chapter III of Regulation (EU) 2019/943: Network access and congestion/management – Articles 14 to 17 and Article 19
5.2.4.1.
The Application
(70) Spain explains that the requirements set out in Articles 14 to 16 and Article 19 cannot be applied in the NPTs, because the TSO carries out the generation dispatch for each of the isolated electricity systems and those systems do not constitute separate interconnected bidding zones. Those dispatches take into consideration the energy transferred via links between islands in the Canary Islands system (i.e., between Lanzarote and Fuerteventura). In the event of congestion in those links, the TSO reorganises the dispatch of the available generating capacity, taking into account mainly technical criteria, to ensure supply. Spain also explains that since the NPT do not constitute separate bidding zones, there is not an associated cross-zonal capacity market and thus no congestion income is generated.
5.2.4.2.
Assessment
(71) The derogations from Articles 7(1) and 8(1) of Regulation (EU) 2019/943 have the effect of not including the electricity systems in the Canary Islands in the integrated day-ahead and intraday markets. Therefore, some provisions relating to the functioning of those markets will necessarily not apply to the Canary Islands.
(72) Moreover, The Canary Islands are not considered a separate bidding zone. Articles 14 to 17 and Article 19 of Regulation (EU) 2019/943 relate to bidding zones and the management of the capacity and congestions between bidding zones. Since each of the electricity systems of the Canary Islands does not constitute separate bidding zones, the provisions referring to bidding zones are not applicable to the Canary Islands. Hence, it follows that a derogation from the requirements in Articles 14 and 15, Article 16(3) to (13), Articles 17 and 19 of Regulation (EU) 2019/943 is not justified.
(73) Moreover, Article 16(1) and (2) of Regulation (EU) 2019/943, which contain general principles regarding congestion management apply to the Canary Islands because those principles provide guarantees to market participants that the TSO is to address congestion problems with non-discriminatory market-based solutions and use transaction curtailment procedures only in emergency situations. Hence, the Commission considers that a derogation from Article 16(1) and (2) of Regulation (EU) 2019/943 is not justified.
5.2.5.
Chapter IV of Regulation (EU) 2019/943: Resource adequacy – Articles 20(3) to (8), Article 21(7) and (8), Article 22(1), points (f) and (h), Article 22(2), (3) and (5), and Article 25(2) to (4)
5.2.5.1.
The Application
(74) Spain explains that, due to the isolation of the NPT, the resource adequacy assessments carried out by the system operator for each of the NPT are independent, and they are not integrated into the European resource adequacy assessment or into the Spanish mainland resource adequacy assessment. Therefore, Spain considers that some of the provisions in Chapter IV are not applicable to the NPT. Spain underlines nevertheless that the current national rules aim, in so far as possible, to provide for an equal treatment between the non-peninsular territories and the mainland market, for example, as regards the levels of security of supply or the methodology for carrying out resource adequacy assessments.
(75) Spain argues that adequacy in the NPT is ensured by the specific mechanism for allocating new capacity set out in Royal Decree 738/2015 as described in recitals 21 to 23. Spain considers that this mechanism should be maintained given the unique nature of the NPT, and thus requests for a derogation from Articles 20(3) to (8), Article 21(7) and (8), Article 22(1), points (f) and (h), Article 22(2), (3) and (5), and Article 25(2) to (4).
(76) Spain argues that the resource adequacy assessments in the NPT comply with the principles included in Article 20(1) and (2) of Regulation (EU) 2019/943. Spain further explains that where adequacy concerns are identified, those are tackled with a call for a competitive bidding procedure (as set out in Royal Decree 738/2015) combined with the assessment of auctions of capacity of renewable origin. These are procedures for which, according to Spain, the requirements in Article 20(3) to (8) of Regulation (EU) 2019/943 cannot be applied.
(77) Spain explains that the provisions included in Article 21(7) and (8) of Regulation (EU) 2019/943, which refer to the temporary nature of capacity mechanisms, are not compatible with the mechanism set out in Royal Decree 738/2015. It states, however, that for any future new capacity mechanisms the requirements in Article 21(7) and (8) of the Regulation will apply.
(78) Spain notes that the mechanism set out in Royal Decree 738/2015 is also incompatible with the following provisions of Regulation (EU) 2019/943:
§ Article 22
Article 22(1), point (f), which sets that the remuneration is to be determined through a competitive process, because according to Spain the remuneration in the existing mechanism is not based on a competitive process, but on a benchmark installation to incentivise efficiency;
Article 22(1), point (h), which sets that capacity mechanisms must be open to the participation of all resources that can provide the required technical performance, because according to Spain the mechanism is applied only to dispatchable installations;
Article 22(2), which sets a list of design features that strategic reserves must comply with, since according to Spain it makes reference to balancing markets that do not exist in the NPT;
Article 22(3), which sets additional requirements to capacity mechanisms other than strategic reserves, since according to Spain the existing mechanism does not comply with those requirements: the retribution does not tend to zero when the capacity level supplied is adequate, the retribution is not only linked to the capacity and the capacity obligations are not transferable;
Article 22(4), which incorporates CO2 emission limit requirements on capacity mechanisms, since according to Spain the current mechanism does not include any requisite of this nature, but it does allow to set technical limitations;
Article 22(5), which requires the adaptation of capacity mechanisms that apply on 4 July 2019.
(79) Spain explains that the reliability standards for the non-peninsular territories are not aligned with the requirements in Article 25(3) of Regulation (EU) 2019/943, since they do not take into account the cost of new entry. Spain adds that even if the standards were the same, they might evolve to stricter values at a different pace, based on which they request a derogation from Article 25(2) to (4) of Regulation (EU) 2019/943.
5.2.5.2.
Assessment
(80) Article 20 of Regulation (EU) 2019/943 addresses resource adequacy in the internal market for electricity and sets out obligations for Member States on how to monitor resource adequacy and how to act when resource adequacy concerns are identified, namely by developing an implementation plan with the aim of removing regulatory distortions, ensuring market-based balancing procurement, or removing regulated prices, among others. The Commission notes that the Canary Islands are subject to a resource adequacy assessment which it is not integrated in the European or national adequacy assessment. Moreover, as most market rules cannot be applied in the Canary Islands (see sections above), most of the elements in the implementation plans pursuant to Article 20(3) of Regulation (EU) 2019/943 are not applicable to the regulated wholesale market in the Canary Islands. Therefore, the Commission considers that a derogation from Article 20(3) to (8) of Regulation (EU) 2019/943 is justified.
(81) Article 21(7) of Regulation (EU) 2019/943 sets forth the requirement for an efficient administrative phase-out of the capacity mechanism where no new contracts are concluded during three consecutive years, whereas Article 21(8) of Regulation (EU) 2019/943 sets out requirements related to the temporary nature of capacity mechanisms. Based on Spain’s explanations, the current regulated remuneration mechanism in Royal Decree 738/2015 for generation in the NPT (which does not have a temporary nature) could be considered equivalent to a capacity mechanism. To ensure the feasibility of this mechanism, which was approved under Commission’s State Aid decision in case SA.42270, and the attainment of the objectives pursued (inter alia, to encourage power plant maintenance and replacement of inefficient power plant and promote renewable energy sources in Spain), the Commission considers that a derogation from Article 21(7) for the Canary Islands is justified.
(82) With regards to the request to derogate from Article 21(8) of Regulation (EU) 2019/943, the Commission considers however that this derogation is not justified given that it is not possible to predict the evolution of the electricity systems of the Canary Islands over time. Accordingly, the duration of the regulated remuneration mechanism set out in Royal Decree 738/2015 should be limited to the period up to 31 December 2029 as approved under State Aid decision in case SA. 42270.
(83) Article 22 of Regulation (EU) 2019/943 sets out the design principles applicable to capacity mechanisms. The Commission considers that a derogation from Article 22(1), points (f) and (h), of Regulation (EU) 2019/943 applicable after the expiration date of the regulated remuneration mechanism set out under the State Aid decision in case SA. 42270 would hinder the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response as these provisions aim to allow the participation by all technologies on a competitive basis. Therefore, the Commission considers that a derogation from Article 22(1), points (f) and (h) is not justified. This should be without prejudice to commitments and contracts concluded with regards to the Canary Islands under the remuneration mechanism in Royal Decree 738/2015 as approved under the State Aid decision in case SA. 42270.
(84) Based on the information provided by Spain (recital 77), the Commission considers that a derogation from the requirements in Article 22(2) and (3) of Regulation (EU) 2019/943 are justified.
(85) With regards to the request for derogation from Article 22(5) of Regulation (EU) 2019/943, the Commission considers that a derogation is not justified given that Article 22(5) of that Regulation is not applicable to capacity mechanisms approved after 4 July 2019.
(86) Regarding Article 22(4) of Regulation (EU) 2019/943 which sets out the CO2 emission limit requirements on capacity mechanisms, the Commission considers that the CO2 emission limit requirements are not applicable to the current regulated remuneration mechanism approved under State Aid decision in case SA. 42270, in light of the small size of the electricity systems of the Canary Islands, the constraints linked to obtaining the necessary environmental permits for new generation capacity and of the higher need for dispatchable generation to ensure the integration of renewables in the electricity systems of the Canary Islands and guarantee security of supply. The Commission considers that a derogation from Article 22(4) of Regulation (EU) 2019/943 applicable after the expiration date of the regulated remuneration mechanism set out under the State Aid decision in case SA. 42270 would hinder the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response as these provisions aim to allow the participation by all technologies on a competitive basis. Therefore, the Commission considers that a derogation from Article 22(4) of Regulation (EU) 2019/943 is not justified. This should be without prejudice to commitments and contracts concluded with regards to the Canary Islands under the remuneration mechanism in Royal Decree 738/2015 as approved under the State Aid decision in case SA. 42270.
(87) In the Commission’s view, based on the explanations provided by Spain (see recital 78) a derogation from Article 25(2) to 25(4) of Regulation (EU) 2019/943 for the operation of the electricity systems in the Canary Islands is justified.
5.2.6.
Derogation from Articles 14 to 17, 19 to 27, 35 to 47 of the Regulation (EU) 2019/943 for the mechanism in Royal Decree 738/2015
(88) In its application, as amended by the second set of clarifications sent by Spain on 17 January 2022, Spain stated that for the existing mechanism in Royal Decree 738/2015 a derogation from Articles 14 to 17, 19 to 27, 35 to 47 of the Regulation (EU) 2019/943 is needed. The Commission deems that such an ample derogation is not necessary to ensure its application. The Commission view is that only the derogations stated in the sections above are justified.
5.3.
No obstruction to the transition towards renewable energy, increased flexibility, energy storage, electro-mobility and demand response
(89) Pursuant to Article 64(1), fifth subparagraph, of Regulation (EU) 2019/943 and Article 66(2) of Directive (EU) 2019/944, a derogation decision is to ensure that it does not obstruct the transition towards renewable energy, increased flexibility, energy storage, electro-mobility and demand response.
(90) As regards the transition towards renewable energy and increased flexibility (including demand response) and energy storage, it is important to note that well-functioning forward, day-ahead, intraday and balancing markets, in line with the requirements set in Regulation (EU) 2019/943 and Directive (EU) 2019/944, should provide the necessary dispatch and investment signals to maximise the potential development of those technologies. By way of example, the development of demand response that can be activated in periods when the electricity systems of the Canary Islands are under stress in principle would be achieved more easily in a system where the demand prices reflect the hourly situation of generation in the Canary Islands, instead of that of the mainland generation. This does not automatically prevent developments of demand response or other forms of flexibility in the current regulatory setting. However, it cannot be excluded that the derogation decision may have a negative impact on such potential developments.
(91) On the other hand, Article 64 of Regulation (EU) 2019/943 does not require that derogation decisions maximise the potential for flexibility or energy storage. A derogation under Article 64 of that Regulation only aims to ensure that it does not obstruct such transition. In other words, the derogation must not prevent developments which, without the derogation, would occur naturally. It is unlikely that, absent the derogation, well-functioning forward, day-ahead, intraday and balancing markets would develop in each of the electricity systems in the Canary Islands. This is due to the challenges linked to the operation of the small and isolated electricity systems, the very low levels of competition in the generation segment, and the lack of connection to the mainland market described in section 2.
(92) Regarding energy storage in particular, the Commission acknowledges the importance of this technology for the integration of variable energy sources, such as renewables, especially in small and isolated systems like the Canary Islands. However, the Commission considers that market-based investments in those technologies should be promoted whenever possible.
See recital 62 of Directive (EU) 2019/944.
For this reason, the Commission considers that a derogation from Article 54 of Directive (EU) 2019/944 pursuant to Article 66 of that Directive is justified only as regards hydropower pumped storage facilities.
(93) The derogation does not appear to have noticeable impact on electromobility.
5.4.
Duration of the derogation
(94) Article 64 of Regulation (EU) 2019/943 and Article 66 of Directive (EU) 2019/944 expressly set out that the only instance where the Commission may provide for an unlimited derogation concerns outermost regions within the meaning of Article 349 TFEU which cannot be interconnected with the Union’s energy market for evident physical reasons. This is easily understandable as those regions do not have any impact on the internal market for electricity.
(95) As mentioned in recital 42, the Canary Islands constitute one of the outermost regions recognised under Article 349 TFEU and they cannot be interconnected with the Union’s energy market for evident physical reasons. Hence, the derogation should be granted for an unlimited duration,
HAS ADOPTED THIS DECISION:
Article 1
A derogation is granted to the Kingdom of Spain from the provisions of Article 3, first paragraph, points (a), (b), (e), (k), (o) and (p), Article 6, Articles 7(1) and 8(1) and (4), Articles 9, 10, 11, Articles 20(3) to (8), 21(7), 22(2) and (3) and 25(2) to (4) of Regulation (EU) 2019/943 and of Article 40(4) to (7) and from the provisions of, insofar pumped hydropower storage facilities are concerned, Article 54 of the Directive (EU) 2019/944 as regards the Canary Islands.
Article 2
The derogation granted under Article 1 shall apply for an unlimited duration.
Article 3
This Decision is addressed to the Kingdom of Spain.
Done at Brussels, 8 December 2023.
For the Commission
Kadri Simson
Member of the Commission
Metadata
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- Afgørelse
- År
- 2024
- Ikrafttrædelsesdato
- 1. januar 1970