My take-home points on MiFIR transaction reporting regarding emission allowances
- Category: Financial Market
The ESMA's recent Report of 15 November 2021 has summarised application of MiFIR transaction reporting regime to emissions markets.
The regulator's views are always valuable, hence I took some brief notes (as below), maybe will be of interest to you.
For more extensive overview of the MiFIR transaction reporting agenda read here.
Capacity distribution tariffs recommended
- Category: Energy market
The most prominent distributions tariff's classification is the distinction between capacity tariffs and volumetric tariffs.
This differentiation is based on whether tariffs are levied on a MW/kW (capacity) or MWh/kWh of consumption (or production).
Although most EU Member States currently charge grid costs through volumetric grid tariffs, European Distribution System Operators (E.DSO) recommend partial switch to the kW-based system.
According to the EU DSOs, shifting from kWh-based towards kW-based network tariffs is reasoned by the fact that the kWh-component of network tariffs rises artificially the value of self-produced (e.g. solar) kWhs, which makes it more attractive to produce your own electricity.
With more self-production, the amount of energy taken from the grid decreases, and besides the decrease of network losses (which is a relatively small effect), the costs of the network do not decrease, since they are mostly fixed, and the network is still needed for periods of low self-production.
These network costs need to be covered with less kWhs, so the kWh-tariff has to increase.
Then it will be even more attractive to invest in solar panels to produce your own kWhs.
In that way the kWh-tariff will spiral upwards as more and more customers adopt self-consumption, or the network cost-recovery will spiral downwards.
DSOs conclude that the kWh-based network tariff component “has a kind of perverse incentive”.
Busy end of the year at Innovation Fund
- Category: Emissions trading
The EU ETS Innovation Fund has recently become fully-fledged operational vehicle to supply projects with money.
On 26 October 2021 the European Commission launched the second call for large-scale projects with a budget of €1.5 billion (the deadline for submission of applications is 3 March 2022 with the results of the evaluation to be determined in the third quarter of 2022).
Just days ago, on 16 November 2021 Innovation Fund distributed over €1 billion between innovative large-scale projects.
This pace is quite impressive given that only on 4 November 2021 the first three grants from Innovation Fund were awarded (totalling EUR 12.7 million, small-scale projects were at issue this turn).
Grants for project development assistance are also at stake (EUR 1.7 million distributed on 4 November 2021 between 10 projects - the European Investment Bank (EIB), which provides the service, helps them advance their maturity through tailored assistance, such as improving their technical documentation and financial models).
In parallel, Fit for 55 package increases the Innovation Fund’s resources and, apart from traditional projects portfolio, brings Carbon Contracts for Difference (CCfDs) to the scene.
Electricity balancing market - not for everyone
- Category: Energy market
Bidding strategy consisting in predetermined intent of covering possible shortages in the balancing electricity market can be qualified as a market manipulation.
P2P only behind one single connection to the grid
- Category: Energy market
This seems to be really important determination, at least when it comes to DSOs: concerning tariffs, P2P only have significance when behind one single connection to the grid - in all other situations, without such a single connection, the regular network tariffs have to be applied to each individually connected customer.
Maritime sector added to the EU ETS
- Category: Emissions trading
Although the EU legislative framework for GHG emissions from maritime transport focuses currently solely on MRV, it is going to change soon and additional 90 million tons of CO2 will be included into the EU ETS.
Emission trading for sectors of transport and buildings - time to integrate into business projections
- Category: Emissions trading
Although the start of the emission trading for sectors of transport and buildings is envisioned as from 2026 only (as an integral part of the Fit for 55 legislative proposals), given its scale and possible impacts it is useful to take a brief look at its main assumptions.
They are briefly covered here.
However, more specific questions also come to mind, in particular about:
- potential parallels to existing EUAs and EUAAs,
- admission of financial institutions to the new cap-and-trade system,
- qualification of the new emission allowances as financial instruments under MiFID II,
- VAT taxation.
Considering this, a more general ambiguity may arise: is the emissions trading system for road transport and buildings a continuity or a revolution?
The answer is available here.
Publication of inside information under REMIT - deadline in 3 months and nothing's ready
- Category: REMIT
You should subscribe to the ACER's newsletter p.d.q. In the new regulatory environment this ACER's leaflet seems more important than the EU Official Journal. Need an example?
REMIT carve-out removed from the regulatory agenda
- Category: REMIT
I have read recently one of multiple ESMA’s reports, and, I must say, it is pretty interesting to see how entirely subjective some important things are.
Consider REMIT carve-out: ESMA says it should be extinguished, it is bad, it flaws competition and a level-playing field between trading venues, etc.
Regulated markets - according to the ESMA - are the main victims because the electricity and gas products have been redirected to OTFs.
What’s funny, the same regulated markets say what an idea, they are happy with the REMIT carve-out.
European Commission triggers multilateral single-dealer venues trading in financial instruments
- Category: MiFID
European Commission in the public consultation launched on 17 February 2020 on the review of the MiFID II and MiFIR framework argues the multilateral single-dealer systems trading in financial instruments offer very similar functionality to a multilateral system, hence MiFID II/MiFIR should encompass these systems to ensure fair treatment for market players.
Combined with the cancellation of the REMIT carve-out (recent ESMA’s intention), it can diametrically change the regulatory landscape for a physically-delivered energy contracts.
Capacity withholding - contentious issue
- Category: REMIT
Capacity withholding can sometimes be qualified as manipulative practice to artificially cause prices to be at a level not justified by market forces of supply and demand (including actual availability of production, storage or transportation capacity).
The precise delineation in this regard seems to be somewhat vague.
It is not a desirable situation from the perspective of legal certainty issues.
The recent ACER’s clarifications (Guidance on the application of REMIT (4th edition, updated on 15 October 2019, pkt 6.4.1 (i), p. 38, 39), although helpful, do not make the issue entirely comprehensive.
The ACER itself declares that the Agency “is committed to provide further clarifying guidance with respect to justifications mentioned in Section 6.4.1.(i)”.
Majority dictatorship among energy regulators
- Category: Energy market
I'm quite surprised by the remark of Alberto Pototschnig, the ACER’s Director, made in the foreword to Consolidated Annual Activity Report for Year 2018 of the Agency for the Cooperation of Energy Regulators (14 June 2019, p. 18).
I have never expected such words from the head of the European Agency.
What exactly was said, then? Here you have a citation:
“With the growing number of complex and contentious decisions taken by the Agency, the number of appeals has also increased. The need to defend its decisions in front of the Board of Appeal or the General Court, or to defend the rulings of the Board of Appeal in front of the General Court, put additional strain on the Agency’s resources, especially considering that the appellants typically use law firms to litigate their cases, while the Agency cannot afford such support. However, it is undisputable that the possibility of judicial or quasi-judicial review of regulatory decision is an essential part of modern and proper regulation. The issue is rather again one of resources on the Agency’s side. However, what I find regrettable is that some of these appeals have been lodged by national regulatory authorities which had participated in forming the Agency’s decision. In fact, all the decisions appealed so far were adopted following a favourable opinion of the Board of Regulators, which is based on a large (two-third) majority of its members, who represent national regulators. Therefore, while the legal right of all those affected, including national regulatory authorities, to appeal an Agency’s decision is, again, undisputable, the very governance of the Agency, with the key role of national regulatory authorities in the decision-making process, might suggest that national regulatory authorities should accept the democratic deliberation process in the Board of Regulators, even when they dissent from it, and do not seek to overturn the Agency’s decision, to which the Board of Regulators has contributed, by resorting to the judicial review”.
To make a long story short: I strongly disagree with you Mr Pototschnig in this part of your statement:
“national regulatory authorities should accept the democratic deliberation process in the Board of Regulators, even when they dissent from it, and do not seek to overturn the Agency’s decision, to which the Board of Regulators has contributed, by resorting to the judicial review”.
Why? Because decisions not only need to be made by a majority of votes cast, it would be much better if they were also reasonable and just and if they are the ACER should not be afraid of the judicial review.
And, further, since the minority should not be bullied by others.
Is there any further need to deliberate this issue? I do not think so.