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Abstract
During the last decade, the level of detail and complexity in the EU electricity market legislation has ballooned. Simultaneously, the pace of technological development has been rapid. This is necessary for the clean energy transition but also creates challenges. How do we ensure the legislation is keeping up with the development of the real world? Should innovative solutions be encouraged, even if they do not comply with the current rules? We argue that regulation of the ‘radical innovations’ is inadequate in the EU. As a solution, we discuss an EU framework for regulatory sandboxes and propose design principles for its development.
Acknowledgements
The authors thank Julius Rumpf for his valuable comments during the writing process. The authors are also grateful for the insightful remarks and suggestions of the two anonymous reviewers.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 IEA, ‘Clean Energy Innovation’, July 2020 <www.iea.org/reports/clean-energy-innovation> accessed 31 May 2022. The IEA's report focus on technological innovations and does not account for, for example, social innovations
2 Communication from the Commission, ‘The European Green Deal’, COM(2019) 640 final, 11 December 2019; Communication from the Commission, ‘Powering a Climate-Neutral Economy: An EU Strategy for Energy System Integration’, COM(2020) 299 final, 8 July 2020
3 See, for example, Communication from the Commission ‘Accelerating Clean Energy Innovation’, COM(2016)763 final, 30 November 2016; Communication from the Commission ‘The European Green Deal, COM (2019) 640 final, 11 December 2019; Communication from the Commission, ‘Fit for 55’: Delivering the EU's 2030 Climate Target on the Way to Climate Neutrality’, COM(2021) 550 final, 14 July 2021
4 Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 Supplementing Directive 2003/87/EC of the European Parliament and of the Council with Regard to the Operation of the Innovation Fund [2019] OJ L 140/6; European Commission, Directorate-General for Research and Innovation, ‘Horizon Europe: Strategic Plan 2021–2024’, 19 March 2021 <https://data.europa.eu/doi/10.2777/083753> accessed 31 May 2022
5 Communication from the Commission ‘REPowerEU Plan’ COM(2022) 230 final, 18 May 2022, 10–12
6 D Zillman and others, ‘Introduction’ in D Zillman and others (eds) Innovation in Energy Law and Technology (OUP 2018), 8–9
7 In the European union primary legislation, the ‘energy trilemma’ is captured in art 194 of the Consolidated Version of the Treaty on the Functioning of the European Union [2008] OJ C 115/13; Bennet Moses argues that forecasting technological development is not even the task of the legislator: ‘[t]he law should not race ahead by anticipating technological trajectories that may never come to pass’. L Bennett Moses, ‘Agents of Change: How the Law Copes with Technological Change’ (2011) 20 Griffith L Rev 763, at 787
8 ME Porter, ‘The Competitive Advantage of Nations’ (The Free Press 1990), 647–649; NA Ashford, C Ayers and RF Stone, ‘Using Regulation to Change the Market for Innovation’ (1985) 9 Harv Envtl L Rev 419
9 About the detailed regulation and ‘regulatory disconnection’, see R Brownsword and H Somsen, ‘Law, Innovation and Technology: Before We Fast Forward – A Forum for Debate’ (2009) 1 Law, Innovation and Technology 1; in general about ‘challenge of regulatory connection’ see R Brownsword, Rights, Regulation and the Technological Revolution (OUP 2008)
10 About the established meaning of the ‘valley of death’, see for example M Granieri and A Renda, Innovation Law and Policy in the European Union (Springer 2012), ch 1.5.1.2
11 MA Heldeweg, ‘Legal Regimes for Experimenting with Cleaner Production – Especially in Sustainable Energy’, (2017) 169 Journal of Cleaner Production 48, at 49, where the author uses term ‘legally disruptive’
12 See Bennet Moses, ‘Agents of Change’ (n 7); For the discussion of ‘socio-technical landscape’ see L Bennet Moses, ‘How to Think about Law, Regulation and Technology: Problems with Technology as a Regulatory Target’ (2013) 5(1) Law, Innovation and Technology, 1
13 Heldeweg (n 11)
14 Ibid. In this paper, the term ‘deviation’ is to used to cover all kind of derogations, exemptions and waivers from the legislation and regulation in force
15 European Commission, ‘Better Regulation Tool #21. Research and Innovation’, 151, <https://ec.europa.eu/info/sites/info/files/file_import/better-regulation-toolbox-21_en_0.pdf> accessed 31 May 2022
16 The Commission definition has been criticised in S Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes – Law without Order?’ [2021] Law and Method doi:10.5553/REM/.000064, 7, as narrow and inaccurate, as it juxtaposes sandboxes with (more generally applicable) experimental regulations and dismisses the fact that the sandboxes may not always include deviations but support with compliance. In the context of radical innovations, however, the deviations are the core nature of the regulatory sandboxes. This does not discard the fact that in many cases, the project developers applying to the regulatory sandboxes may not actually need the deviations but the legal counselling and small adjustments to the project – for example in Ofgem, ‘Innovation Link: Enabling Trials through the Regulatory Sandbox’, 23 October 2018 <www.ofgem.gov.uk/publications/innovation-link-enabling-trials-through-regulatory-sandbox> accessed 31 May 2022
17 See International Smart Grid Action Network (ISGAN), ‘Smart Grid Case Studies, Innovative Regulatory Approaches with Focus on Experimental Sandboxes 2.0 Casebook’ (October 2021)
18 Also T Schittekatte and others, ‘Regulatory Experimentation in Energy: Three Pioneer Countries and Lessons for the Green Transition’ (2021) 156 Energy Policy 112382; A Veseli and others, ‘Practical Necessity and Legal Options for Introducing Energy Regulatory Sandboxes in Austria’ (2021) 73 Utilities Policy 101296
19 Ibid; ACER, CEER, ‘The Bridge Beyond 2025, Conclusions Paper’, November 2019
20 ‘REPowerEU package’ refers here to the Communication from the Commission ‘REPowerEU Plan’ and the several other documents published in the same context
21 Art 1(3) of Proposal for a Directive of the European Parliament and of the Council Amending Directive (EU) 2018/2001 on the Promotion of the Use of Energy from Renewable Sources, Directive 2010/31/EU on the Energy Performance of Buildings and Directive 2012/27/EU on Energy Efficiency, COM(2022) 222 final, Brussels, 18 May 2022
22 The scope of the paper is limited to the electricity sector, which is highly important to the energy transition due to electrification. The sectoral electricity market legislation in the EU is already deeply harmonised, providing an interesting subject for research. Similar kind of outcomes regarding the regulation of radical innovations can be expected to occur in the gas sector, too
23 The EU energy legislative package from 2018–2019 is often referred to as the Clean Energy Package
24 For example, the Electricity Regulation (EU) 2019/943 aims to ‘set the basis for an efficient achievement of the objectives of the Energy Union and in particular the climate and energy framework for 2030 by enabling market signals to be delivered for increased efficiency, higher share of renewable energy sources, security of supply, flexibility, sustainability, decarbonisation and innovation’ (italics added), Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity [2019] OJ L 158/54 (hereafter Electricity Regulation (EU) 2019/943), art 1(a)
25 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 [2019] OJ L 158/125 (hereafter Electricity Directive (EU) 2019/944)
26 W Webster, ‘The Establishment of Common Market Rules’ in W Kettlewell and C Jones (eds), EU Energy Law Volume I: The Internal Energy Market (Edward Elgar 2021), 653
27 About different kinds of innovations, see for example S Ranchordás, ‘Does Sharing Mean Caring? Regulating Innovation in the Sharing Economy’ (2015) 16 Minn JL Sci & Tech 414; D Zillman and others (n 6), 10–11
28 For example, A Butenko and P Larouche, ‘Regulation for Innovativeness or Regulation of Innovation?’ (2015) 7 Law, Innovation and Technology 52, at 56
29 It can be noted that in the Commission proposal for the revised Electricity Regulation (Proposal for a Regulation of the European Parliament and of the Council on the Internal Market for Electricity (Recast), COM(2016) 861 final, 30 November 2016), the wording in art 3 was ‘market rules shall allow for progress in research and development to be realized and used to the benefit of society’ (italics added). The Council suggested to delete the language, whereas Parliament was in favour of an amended text based on the Commission proposal. The end result is a compromise referring to the development of (separately defined) demonstration projects. It can be seen as logical that this later development phase is addressed, as the market rules may actually affect this stage and not so much to the progress in research
30 COM(2016) 861 final, 19
31 In the energy context, the principle applied, for example, in cases C-454/18 Baltic Cable AB v Energimarknadsinspektionen [2020] ECLI:EU:C:2020:189, C-17/03 VEMW and Others [2005], ECLI:EU:C:2005:362
32 Art 288 of the Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C 326/47. In the cases of direct applicability, the Member States’ competence to explain or clarify directly applicable provisions is also limited; see, for example, case C-278/02 Herbert Handlbauer GmbH [2004] ECL:EU:C:2004:388, case C-316/10 Danske Svineproducenter v Justitsministeriet [2010] ECLI:EU:2011:863
33 Butenko and Larouche (n 28)
34 Ibid
35 Webster (n 26)
36 Commission Decision (EU) 2020/2123 of 11 November 2020 granting the Federal Republic of Germany and the Kingdom of Denmark a derogation of the Kriegers Flak combined grid solution pursuant to art 64 of Regulation (EU) 2019/943 of the European Parliament and of the Council, OJ L 426/35 (hereafter Commission Decision (EU) 2020/2123), para 53
37 See Schittekatte and others (n 18); Veseli and others (n 18)
38 Commission Decision (EU) 2020/2123
39 The second and third Electricity Market Directives also included a derogation provision, but the general derogations could earlier be applied to only small (and micro) isolated systems. In the Electricity Regulation (EC) No 714/2009, there was no article containing rules on general derogations
40 See art 66 of the Electricity Directive (EU) 2019/944 and art 64 of the Electricity Regulation (EU) 2019/943
41 ‘Small isolated system’ means any system that had a consumption of less than 3,000 GWh in the year 1996, where less than 5% of annual consumption is obtained through interconnection with other systems; and ‘small connected system’ means any system that had a consumption of less than 3,000 GWh in the year 1996, where more than 5% of annual consumption is obtained through interconnection with other systems. Electricity Directive (EU) 2019/944, art 2(42) and (43)
42 Application of 30 June 2020 granting the Federal Republic of Germany and the Kingdom of Denmark a derogation according to art 64 of Regulation (EU) 2019/943 of the European Parliament and of the Council for Kriegers Flak Combined Grid Solution (KF CGS) <https://ec.europa.eu/energy/sites/ener/files/documents/2020_kriegers_flak_application.pdf> accessed 31 May 2022
43 Commission Decision (EU) 2020/2123, section 5.2.2
44 According to art 16(8) of the Electricity Regulation (EU) 2019/943, the TSOs are to provide at least 70% of the interconnection capacity to the market actors, taking into account the operational security limits. For more detailed analysis regarding the effects on hybrid offshore infrastructures, see CT Nieuwenhout, ‘Dividing the Sea into Small Bidding Zones? The Legal Challenges of Connecting Offshore Wind Farms to Multiple Countries’ [2022] Journal of Energy & Natural Resources Law, doi:10.1080/02646811.2021.2011034
45 The definition of a ‘system’ is lacking from the EU legislation, but according to the Commission it is ‘something which can include consumption points and can be linked to other systems’. In addition, a system should be separable from another system. See Commission Decision (EU) 2020/2123, para 28
46 The commission interpreted the smallness rather widely, and Nieuwenhout (n 44), 5, 11 aptly raises the question whether ‘small isolated system’ was meant to cover 400 MW interconnectors
47 Commission Decision (EU) 2020/2123, para 37
48 Commission Decision (EU) 2020/2123, para 36
49 The second energy package refers to the legislative instruments in the energy sector adopted in 2003, and the third refers to those adopted in 2009
50 Commission Decision (EU) 2020/2123, para. 73. The Commission also stated that ’the mere fact that national authorities and the Commission have over a number of years not raised legal concerns as regards a project cannot in any way be seen as a justification for granting a derogation to the project’ (para 70)
51 J Papsch, ‘Derogations and Exemptions’ in W Kettlewell and C Jones (eds), EU Energy Law Volume I: The Internal Energy Market (Edward Elgar 2021), 581–582
52 Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on Conditions for Access to the Network for Cross-Border Exchanges in Electricity and Repealing Regulation (EC) No 1228/2003, [2009] OJ L 211/15
53 For detailed analysis of the case, see J Rumpf and L Hancher, ‘Baltic Cable AB v Energimarknadsinspektionen (C-454/18): The CJEU Decides on Congestion Income Regulation of Single Electricity Interconnector Companies and Applies Classic Remedies for Modern Issues’, (2021) 46 E.L. Rev., 242
54 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, [2009] OJ L 211/55
55 Rumpf and Hancher (n 53) consider instead that the court narrowly avoided interpretation contra legem as the court interpreted art 16(6) in its context and in the light of Recital 21 of the Electricity Regulation (EC) No 714/2009
56 For example, in C-17/03 VEMW and Others [2005] EU:C:2005:362, para 41 and references therein
57 According to art 64 of the Electricity Regulation (EU) 2019/943, the derogation can be granted for a limited time; also see Schittekatte and others (n 18) more generally about ‘waivers’
58 P Popelier, 'Five Paradoxes on Legal Certainty and the Lawmaker' (2008) 2 Legisprudence 47, at 54
59 Also Veseli and others (n 18); Schittekatte and others (n 18). In accordance with the principle of shared competence, the Member States shall exercise their competence to the extent that the Union has not exercised its competence. In the case of conflicts, the EU law prevails over the national law
60 Veseli and others (n 18); Schittekatte and others (n 18). See also K Tews, ‘Europeanization of Energy and Climate Policy: The Struggle Between Competing Ideas of Coordinating Energy Transitions’, (2015) 24(3) Journal of Environment and Development, 267, where the author discusses ‘laboratories of innovation’
61 See European Commission, ‘Electricity Network Codes and Guidelines’ <https://energy.ec.europa.eu/topics/markets-and-consumers/wholesale-energy-market/electricity-network-codes-and-guidelines_en> accessed 31 May 2022
62 Tews (n 60)
63 Ibid; see also n 90
64 See for example S Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16) and references therein, 3, 8
65 For example S Philipsen, E F Stamhuis and M de Jong, ‘Legal Enclaves as a Test Environment for Innovative Products: Toward Legally Resilient Experimentation Policies’ [2021] Regulation & Governance, 8–9, doi:10.1111/rego.12375
66 This should also be clearly communicated to the project developers to avoid ungrounded expectations (ibid)
67 S Ranchordás, The Constitutional Sunsets and Experimental Legislation: A Comparative Perspective (Edward Elgar 2014); Heldeweg (n 11); Philipsen, Stamhuis and de Jong (n 65). About the precautionary principle and criticism towards the innovation principle, see K Garnett, G Van Calster, and L Reins, ‘Towards an Innovation Principle: An Industry Trump or Shortening the Odds on Environmental Protection?’ (2018) 10 Law, Innovation and Technology, 1
68 Schittekatte and others (n 18); Heldeweg (n 11) where the author sees experimental regimes as a solution to avoid regulatory disconnect. A regulatory sandbox could also be considered a solution to the ‘Collingridge dilemma’ – D Collingridge, The Social Control of Technology (Francis Pinter 1980) – according to which first there is too little information for regulating new technology and then, as the technology matures, regulating becomes costly. However, this applies better to unregulated sectors than highly regulated ones like electricity
69 Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16), 11–12 and references therein
70 For example Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16); Schittekatte and others (n 18)
71 About the relation of energy law and energy innovations, see Zillman and others (n 6)
72 For the discussion of ‘landscape’, see Bennet Moses (n 7, n 12)
73 ACER, CEER (n 19), 17
74 Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16) considers experimental legal regimes as a wider concept and regulatory sandboxes as a subset. The examples used here are legal regimes that allowed new technical solutions but did not include, for example, the element of limited time for deviations, which is typical of sandboxes
75 Directive 2007/46/EC of the European Parliament and of the Council of 5 September 2007 Establishing a Framework for the Approval of Motor Vehicles and Their Trailers, and of Systems, Components and Separate Technical Units Intended for Such Vehicles [2007] OJ L 263/1, arts 20, 21. The Directive is not in force anymore
76 Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on Industrial Emissions (Integrated Pollution Prevention and Control) [2010] OJ L 334/17, art 15(5)
77 Proposal for a Regulation of the European Parliament and of the Council Laying Down Harmonised Rules on Artificial Intelligence (Artificial Intelligence Act) and Amending Certain Union Legislative Acts, COM(2021) 206 final, 21 April 2021
78 The Regulation has yet not been published but the text adopted by the Parliament on 24 March 2022 and by the Council on 12 April 2022 can be found at <www.europarl.europa.eu/RegData/seance_pleniere/textes_adoptes/definitif/2022/03-24/0088/P9_TA(2022)0088_EN.pdf
79 Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the Promotion of the Use of Energy from Renewable Sources [2018] OJ L 328/82
80 European Commission, ‘Better Regulation Tool #21’ (n 15)
81 Art 1(3) of the Commission Proposal (COM(2022) 222 final)
82 Art 15(2) of the Renewable Energy Directive 2018/2001, under an earlier revision (Commission proposal COM(2021) 557 final, 14 July 2021), relates to the technical specifications that are to be met by renewable energy equipment and systems in order to benefit from support schemes
83 Ranchordás, Constitutional Sunsets and Experimental Legislation (n 67); Heldeweg (n 11); Philipsen, Stamhuis and De Jong (n 65)
84 Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16)
85 The following questions are based on Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16); Ranchordás, Constitutional Sunsets and Experimental Legislation (n 67); Heldeweg (n 11); Philipsen, Stamhuis, de Jong (n 65); Schittekatte and others (n 18); Veseli and others (n 18)
86 The Consolidated Version of the Treaty on the Functioning of the European Union art 4(3)
87 Veseli and others (n 18)
88 Schittekatte and others (n 18)
89 The Consolidated Version of the Treaty on the Functioning of the European Union 194(2). For example, the climate and renewable energy targets have their implications for the choices of the Member States. For a detailed analysis on the provision, see K Huhta, ‘The Scope of State Sovereignty Under Art 194(2) TFEU and the Evolution of EU Competences in The Energy Sector’, (2021) 70(4) International & Comparative Law Quarterly, 991
90 In principle, an EU sandbox could fit better for such cross-border (high-voltage) projects that are directly regulated on the EU level. The EU-level legislation enabling national sandboxes would allow ‘experimenting by devolution’ while ‘experimenting with derogations’; see Heldeweg (n 11) with references to DT Hornstein, ‘Complexity Theory, Adaptation, and Administrative Law’ (2005) 54 Duke LJ 913
91 See Schittekatte and others (n 18); ISGAN (n 17)
92 Schittekatte and others (n 18), 8
93 Electricity Directive (EU) 2019/944, art 59
94 Schittekatte and others (n 18) have proposed a somewhat similar concept
95 For example in Denmark, see Energistyrelsen, ‘Kriterier for tildelning af regulatoriske testzoner’ <https://ens.dk/sites/ens.dk/files/Forskning_og_udvikling/kriterier_til_regulatoriske_testzoner_26.06.2020.pdf> accessed 31 May 2022, and in Austria, see ISGAN (n 17), 10
96 About the challenge in relation to regulating technologies, see Bennet Moses (n 12)
97 In the ISGAN report (n 17) it is emphasised that there is no one-size-fits-all solution for experimenting but it is simultaneously stated that a (political) ‘vision of a future energy system’ is needed
98 cf Schittekatte and others (n 18), 8
99 Heldeweg (n 11)
100 For example, Philipsen, Stamhuis and de Jong (n 65) state that the ‘experiment should never last longer than strictly necessary to achieve its objectives’
101 For example in Denmark, the sandbox period was limited to 24 months (Energistyrelsen n 95), while in the Netherlands it was limited to 10 years – see Schittekatte and others (n 18), table 1. As electricity network investments are often long term, too short a time frame could unnecessarily limit the scope of participants
102 Ranchordás, ‘Experimental Regulations and Regulatory Sandboxes’ (n 16) and Philipsen, Stamhuis and de Jong (n 65) discuss the importance of the clear regulation in this respect
103 See for example EC van der Waal, AM Das and T van der Schoor, ‘Participatory Experimentation with Energy Law: Digging in a “Regulatory Sandbox” for Local Energy Initiatives in the Netherlands’ (2020) 13 Energies, 458; doi:10.3390/en13020458; Ranchordás, Constitutional Sunsets and Experimental Legislation (n 67); ISGAN (n 17)
104 ACER, CEER (n 19)
105 Heldeweg (n 11)
106 This ‘bias’ is discussed by Schittekatte and others (n 18)
107 For an overview of different regimes, see ISGAN (n 17)
108 In the Austrian sandbox, this kind of strategic goal was suggested: see ISGAN (n 17), 14
109 Schittekatte and others (n 18), 4 compare the regimes of Great Britain, Netherlands and Italy. See also ISGAN (n 17)
110 See n 9
111 Schittekatte and others (n 18), table 1
112 The principles of Article 3 of Electricity Regulation (EU) 2019/943 could also provide the basis
113 K Garnett, G Van Calster and L Reins (n 67) emphasise the importance of environmental and consumer rights in relation to the innovation principle
114 Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 Concerning Common Rules for the Internal Market in Natural Gas and Repealing Directive 2003/55/EC [2009] OJ L 211/94; Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on Conditions for Access to the Natural Gas Transmission Networks and Repealing Regulation (EC) No 1775/2005 [2009] OJ L 211/36
115 Commission Proposals COM(2021) 803 final and COM(2021) 804 final, 15 December 2021; a regulatory sandbox for energy and hydrogen is briefly discussed in Gögkce Mete and Leonie Reins, ‘Governing New Technologies in the Energy Transition – The Hydrogen Strategy to the Rescue?’ [2020] 3 CCLR 210