Głowacki Law Firm

Dynamic pricing
European Union Electricity Market Glossary

 

 

 

Dynamic pricing refers to end-user prices that to a varying degree reflect the marginal network costs and/or generation costs of energy, which is normally purchased in the wholesale market.

 

 

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity 

 

Article 11

Entitlement to a dynamic electricity price contract

 

1. Member States shall ensure that the national regulatory framework enables suppliers to offer dynamic electricity price contracts. Member States shall ensure that final customers who have a smart meter installed can request to conclude a dynamic electricity price contract with at least one supplier and with every supplier that has more than 200 000 final customers.

 

2. Member States shall ensure that final customers are fully informed by the suppliers of the opportunities, costs and risks of such dynamic electricity price contracts, and shall ensure that suppliers are required to provide information to the final customers accordingly, including with regard to the need to have an adequate electricity meter installed. Regulatory authorities shall monitor the market developments and assess the risks that the new products and services may entail and deal with abusive practices.

 

3. Suppliers shall obtain each final customer's consent before that customer is switched to a dynamic electricity price contract.

 

Article 2(11) of the European Commission Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast) of 30 November 2016 (COM(2016) 864 final 2016/0380 (COD)) defined 'dynamic electricity price contract' as 'an electricity supply contract between a supplier and a final customer that reflects the price at the spot market, including at the day ahead market at intervals at least equal to the market settlement frequency'.

 
Finally, Article 2(15) of the Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity stipulated the following definition of the ‘dynamic electricity price contract’:

 

'an electricity supply contract between a supplier and a final customer that reflects the price variation in the spot markets, including in the day-ahead and intraday markets, at intervals at least equal to the market settlement frequency'.

 

Dynamic pricing has many applications according to the granularity of consumption metering and the dynamic nature of Time-of-Use Tariff (ToU).

 

In this way dynamic pricing in the electricity market is inherently involved with smart metering.

 

Interesting possibilities are offered, for example, by smart meters with remote consumption control functionality, which are able to adapt the operation of specific home appliances, such as heat pumps, to hourly electricity prices, to shift consumption to lower-price periods.

 

Real-time pricing matches consumer energy prices much more closely with wholesale prices (ACER/CEER Annual Report of 22 October 2018 on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2017 (Consumer Empowerment Volume), p. 24).

 

There is significant variation in the penetration of dynamic pricing among household electricity consumers in Europe.

 

Dynamic pricing is more frequently applied in the supply of energy than in network charges.

 

As for gas, dynamic pricing is virtually non-existent, due to the storability of gas and, compared to electricity, the lower probability of peak prices (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2015, Retail Market, November 2016, p. 24).

 

Article 11(1) of the said European Commission Proposal of November 2016 envisions the rule that every final customer in the European Union Internal Electricity Market would be entitled, on request, to a dynamic electricity price contract by his supplier.

 

Moreover, Article 11(2) was proposed by the European Commission as follows:

 

“Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract.”

 

However, the Report of the European Parliament’s Committee on Industry, Research and Energy (ITRE) of 27 February 2018 on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)) proposed Article 11(2) to be given the following wording:


“Member States shall ensure that final customers are fully informed by the suppliers of the opportunities and risks of such dynamic electricity price contract including the need to have an adequate electricity meter installed.”

 

The ITRE Committee in the aforementioned Report of 27 February 2018 also proposed the additions of paragaraphs 2a, 2b and 3a to the said Article 11 - as follows:

“2a. Every final customer shall always be required to give consent before being switched to a dynamic price contract.

2b. Member States shall aim at reducing the share of fixed components in final customers’ electricity bills.

3a. Member States shall ensure that adequate safeguards on the exposure of price changes for final customers are in place to avoid bill shocks or high levels of financial liability.”

 

Article 16(7) of the European Commission Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), in turn, stipulates that where the EU Member States have implemented the deployment of smart metering systems, regulatory authorities may introduce "time differentiated network tariffs, reflecting the use of the network", in a transparent and foreseeable way for the consumer.

 

Furthermore, pursuant to Article 16(9)(c) of the said draft Regulation, harmonisation of time differentiated network tariffs should be a part of the recommendation provided by the European Agency for the Cooperation of Energy Regulators (ACER) to the EU Member States' national regulatory authorities regarding the progressive convergence of transmission and distribution tariff methodologies.

 

The policies and measures to support dynamic pricing should be described in the national climate and energy plans, the EU Member States are required to prepare under Article 3 of the Regulation of the European Parliament and of the Council on the Governance of the Energy Union.

 

 

 

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast) on common rules for the internal market in electricity (recast)

 

Recital 23

 

[...] Member States should ensure that all beneficiaries of regulated prices are able to benefit fully from the offers available on the competitive market when they choose to do so. To that end, those beneficiaries need to be equipped with smart metering systems and have access to dynamic electricity price contracts. In addition, they should be directly and regularly informed of the offers and savings available on the competitive market, in particular relating to dynamic electricity price contracts, and should be provided with assistance to respond to and benefit from market-based offers. 

 

Recital 37

 

All consumers should be able to benefit from directly participating in the market, in particular by adjusting their consumption according to market signals and, in return, benefiting from lower electricity prices or other incentive payments. The benefits of such active participation are likely to increase over time, as the awareness of otherwise passive consumers is raised about their possibilities as active customers and as the information on the possibilities of active participation becomes more accessible and better known. Consumers should have the possibility of participating in all forms of demand response. They should therefore have the possibility of benefiting from the full deployment of smart metering systems and, where such deployment has been negatively assessed, of choosing to have a smart metering system and a dynamic electricity price contract. This should allow them to adjust their consumption according to real-time price signals that reflect the value and cost of electricity or transportation in different time periods, while Member States should ensure the reasonable exposure of consumers to wholesale price risk. Consumers should be informed about benefits and potential price risks of dynamic electricity price contracts. Member States should also ensure that those consumers who choose not to actively engage in the market are not penalised. Instead, their ability to make informed decisions on the options available to them should be facilitated in the manner that is the most suited to domestic market conditions. 

 

 

 

 

 

 

IMG 0744

    Documentation    

  

 

 

 

Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU, Recitals 23, 37, Article 2(15), Article 11


CEER Report of 22 July 2019 (Case Studies on Implementing Technology that Benefits Consumers in the CEP, Ref: C19-IRM-16-04)

 

Report on the proposal for a directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) (COM(2016)0864 – C8-0495/2016 – 2016/0380(COD)), European Parliament, 27 February 2018, Committee on Industry, Research and Energy 

 

Proposal for a Directive of the European Parliament and of the Council on the internal market for electricity (recast) on common rules for the internal market in electricity (recast), 30.11.2016, COM(2016) 864 final 2016/0380 (COD), Article 11

 

Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), Article 16(7) and 16(9)(c)

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2015, Retail Market, November 2016, p. 24

 

 

 

 

 

clip2

    Links    

 

 

 

 

 

 

 

 

Last Updated on Sunday, 27 October 2019 19:45
 

Search

TwitterFacebookLinkedin
Copyright © 2009 - 2019 Michal Glowacki. All rights reserved.
The materials contained on this website are for general information purposes only and are subject to the disclaimer