Feature – CEER Recommendations on implementing the Clean Energy legislative provisions on dynamic electricity pricing contracts
CEER sets out regulators’ recommendations on implementation of the Clean Energy legal provisions on dynamic electricity pricing contracts.
What are the new legal provisions on dynamic price contracts?
The 2019 Clean Energy legislative package entitles customers with smart meters to conclude a dynamic electricity price contract with at least one supplier in their market and with every supplier that has more than 200,000 final customers.
Article 2 (15) of the recast Electricity Directive (2019) defines a dynamic electricity price contract as “an electricity supply contract between a supplier and a final customer that reflects the price variation at the spot markets including day ahead and intraday markets, at intervals at least equal to the market settlement frequency.” Furthermore, Article 11 specifies common implementation provisions for Members States such as requiring suppliers to ensure final customers are fully informed of the opportunities, costs and risks of dynamic price contracts; requiring them to obtain the consent of each final customer before that customer is switched to a dynamic electricity price contract; and requiring Member States or regulators to monitor and report annually on the market developments of such contracts, including market offers and the impact on consumers’ bills, including the level of price volatility.
What’s in this CEER Report?
The CEER Recommendations on Dynamic Price Implementation address the design of dynamic price contracts, including the reference price; information and customer protection; monitoring and enforcement; and potential barriers to dynamic price implementation.
CEER recognises that implementing this new legislation can be challenging in Member States where customers are not necessarily familiar with such contracts, and in addition, conditions vary from country to country. The objective of this CEER report is to provide national authorities and suppliers with useful recommendations, with a view to their transposition into national law.
Do dynamic price contracts benefit consumers?
Dynamic price contracts could be beneficial for the consumer as they enable those who can manage and adjust their consumption, in response to price signals, to save money on their electricity bill. Besides shifting their load to avoid consuming during peak price hours, customers could also benefit from the lower margins applied to contracts based on these spot related prices. Dynamic contracts may enable customers to participate in demand response, either individually or through aggregation, giving market participants a price-signal that reflects the scarcity on the market used for reference.
Importantly, no customer will be forced to adopt a dynamic price contract and it is not the role of the regulators to interfere with the choices made by consumers.
What does the CEER Report propose for Dynamic Price Contracts?
Regarding their general design, CEER recommends that dynamic price contracts refer to day-ahead market prices and cautions against the use of floor/ceiling restrictions.
Dynamic price contracts should be based on actual meter data, as a profiled customer will not have the same level of incentive for demand response activities if they are not charged specifically for the times at which they consume. Therefore, in order to access a dynamic price contract, the customer must have a smart meter that records consumption data at the same granularity as the relevant reference price.
The legislation also requires that consumers must be fully informed by suppliers of the opportunities, costs and risks of dynamic price contracts, and suppliers must obtain each final customer’s consent before that customer is switched to such a contract. For this purpose, the report recommends a set of key information items that could be provided to consumers.
In order to assess the risks, benefits and impact on consumers, Member States or their regulatory authorities must establish relevant indicators to allow for effective monitoring of their uptake and use. For this purpose, CEER recommends three different types of monitoring indicators (i.e. comparison between the cost of a dynamic price offer with one or several other contract types; year on year variation of the cost of dynamic price offers; volatility of price).
Of course, the variation in retail market design as well as the specifics of competition and consumer law in each Member State must be taken into account when considering the recommendations in this report. Read the full CEER report here.