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Energy policy environment

European energy and climate policies

European climate policies

In October 2014, the EU heads of state or government approved a framework for climate and energy policies up to 2030. This framework, which is based on the 2020 climate and energy package, commits the European Union to reaching the following three main goals by 2030:

  • A reduction of at least 40% in greenhouse gas emissions below the 1990 level
  • An increase in the share of renewable energy in the total energy mix to at least 27%
  • An improvement of at least 27% in energy efficiency over the 2007 level

These measures are intended to meet the long-term goals for the transition to a competitive low-CO2 economy by 2050, the Energy Road Map 2050 and the Transport White Paper. They also illustrate the harmonisation of Europe’s climate policies with the global goals that were approved by the UN Climate Conference in Paris during December 2015.

Emission trading

A decision by the European Commission postponed the auctions for 900m CO2 emission certificates to 2019 and 2020 (“backloading”) and also approved a reduction in the number of certificates starting in 2019 with further adjustments through a market stabilisation reserve. This mechanism is designed to increase or decrease the number of emission certificates on the market based on the economic environment. During the final trading period (2021–2030), the number of certificates will be reduced by 2.2% each year.

Allocation of CO2 emission certificates

EVN purchases 100% of the emission certificates required for its electricity generation over the market. The allocation of free certificates for heat generation began in 2013 at a level equal to 80% of the previously determined CO2 emissions for each plant. Plans call for a linear reduction in free certificate allocations to 30% of the plant emissions by 2020. Moreover, the number of allocated certificates will also be reduced if there is a significant decrease in heat generation.

Market design for electricity

The so-called “winter package” on the design of the electricity market is expected to be presented at the end of 2016. With these new legal regulations, the EU Commission plans, among others, to ensure the market-based implementation of renewable generation as well as the availability of sufficient generation capacity to protect supply security.

German-Austrian electricity price zone

The Agency for the Cooperation of Energy Regulators (ACER) and the German Federal Network Agency are advocating measures that would lead to the medium-term separation of the joint electricity price zone between Germany and Austria that has existed since 2002. The Austrian side – in particular Oesterreichs Energie and the Austrian electricity regulatory authority – has rejected these efforts, among others with reference to the goal of establishing an integrated EU internal energy market as well as the ongoing shortages in the German networks. Notwithstanding the uncertain outcome of the current negotiations between ACER and the European Network of Transmission System Operators for Electricity (ENTSO-E) on this subject, it can be assumed that EVN’s business development will not be significantly affected by any changes in the German-Austrian electricity price zone during the 2016/17 financial year. Later effects are impossible to estimate from the present point of view.

Energy strategy 2030

The Austrian federal government has set a goal to define an energy strategy for the years up to 2030. The envisaged energy system is to be efficient, affordable and socially viable. Its overriding goals are the protection of supply security, prosperity and competitiveness as well as an intact environment. EVN supports these goals and contributes to their realisation with an investment programme that is focused on the home market of Lower Austria.

In spring 2016 the Austrian federal government presented a green book which was designed to serve as the basis for informed and factual discussions on an integrated energy and climate strategy. It not only covers the goals up to 2030, but also includes long-term perspectives up to 2050. The recently concluded consultations will be followed by the preparation of a white book during the first half of 2017.

Regulatory environment

Austria

The new regulatory period in Austria started on 1 January 2013 for natural gas and on 1 January 2014 for electricity; both periods cover five years. Consequently, the new regulatory calculation method for the natural gas distribution networks will be defined in autumn 2017 and take effect as of 1 January 2018. The interest- bearing capital base is defined by the regulatory asset base. Further key parameters for the regulatory model are the weighted average cost of capital (currently 6.42%) and productivity variables. These variables include the general factor for all companies as well as the company-specific factor. They form the specific cost-cutting target for each company which also takes inflation adjustment into account. EVN’s network company has received a very positive evaluation from the regulatory authority for its productivity in a peer-group benchmarking.

Bulgaria

Household and commercial customers in Bulgaria are supplied at regulated prices, while business customers are being gradually transitioned to the liberalised market. EVN is active in this customer segment through its trading subsidiary EVN Trading South East Europe EAD. EVN Bulgaria Electrosnabdiavane EAD, which also supplies household and business customers on the regulated market, acts as a “supplier of last resort” and services those customers in the liberalised market segment who do not select another supplier or cannot receive electricity from their chosen supplier through no fault of their own. The sale of energy to customers in the regulated market segment as well as the procurement of the corresponding volumes is based on regulated prices which are below the market level.

The new regulatory periods in Bulgaria started on 1 August 2015 for electricity and on 1 July 2016 for heat. The period for electricity covers three years, the period for heat covers one year. The regulatory method for the electricity network defines a revenue cap which comprises the recognised operating expenses, amortisation and depreciation as well as an adequate return on the regulatory asset base. The method also takes into account the investment factor which is defined annually.

The Bulgarian regulatory authority raised the electricity tariffs for end customers in EVN’s supply area by an average of 0.83% as of 1 July 2016. However, the relevant tariffs for the reporting year were still based on the 0.4% price reduction implemented on 1 August 2015. The end customer prices for heat were reduced step-by-step by 1.9% in 2015/16 as compared to the level on 1 July 2015. EVN is continuing to actively pursue the arbitration proceedings started in June 2013 at the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID). In 2013/14 EVN was confronted with administrative proceedings that were initiated by the local regulatory authority and aimed at withdrawing the license for the Bulgarian electricity sales subsidiary EVN Bulgaria Electrosnabdiavane EAD. The proceedings have still not been terminated.

Macedonia

The unbundling of the individual business areas in utility companies in Macedonia has been in progress since 1 January 2014. EVN met these requirements by establishing a sales company (EVN Macedonia Elektrosnabduvanje DOOEL) and a production company (EVN Macedonia Elektrani DOOEL) in addition to the previously founded EVN Macedonia AD, which continues to operate as a network company and a sales company for the regulated customer segment. The liberalisation of the electricity market in Macedonia will be implemented gradually by July 2020, dependent on customers’ annual electricity consumption.

A tariff decision on 1 July 2016 reduced the electricity prices for end customers by an average of 0.3%. The current regulatory period which started on 1 January 2015 covers three years. Similar to Bulgaria, the regulatory method for the electricity network defines a revenue cap which comprises the recognised operating expenses, amortisation and depreciation as well as an adequate return on the regulatory asset base.

Croatia

The Croatian natural gas market for business and industrial customers has been liberalised since 2012, and the liberalisation for household customers is scheduled for April 2017. Natural gas deliveries to household customers will still be based on regulated tariffs up to 31 March 2017. The household tariffs in the supply area covered by EVN Croatia were reduced by an average of 16.5% for the period from 1 April 2016 to 31 December 2016. The regulatory authority has introduced changes to improve regulation and the implementation of balancing energy rules throughout the entire natural gas market. The latter is part of the harmonisation of Croatian regulatory requirements with the surrounding natural gas markets and with EU directives. EVN Croatia has included the balancing energy risks in its natural gas price and passed this adjustment on to the responsible business units, which eliminates the balancing energy risk for the distribution network operator.

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