An expert in energy-related legislation talks about the impacts of the energy crisis and ESG reporting.
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The energy sector has experienced a turbulent period over recent years. After the Covid-19 pandemic, Russia’s invasion of Ukraine put the energy market under extreme pressure. Energy prices soared, leading to bankruptcies among even large distributors – a previously unimaginable situation. Their clients were left fearing that they would end up without electricity or natural gas supplies.
And while Slovak energy-related legislation is conservative, and the country lags in transposing some EU energy legislation, it features one legal instrument for which the European Commission has acknowledged Slovakia. The institute of last-resort supplier determines who will be the successor in the event of an energy distributor’s failure, and thus responsible for supplying its clients with electricity, gas or heat. The EC has followed Slovakia’s example in forming its own recommendations to other EU member states.
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Barbora Balunová
Attorney-at-law and partner at L/R/P advokáti. In her practice, she focuses mainly on providing legal advice in the field of energy. She has significant experience related to representing clients in share-deal or asset-deal acquisitions as well as investment projects (brownfield, greenfield) in the field of energy.
“The European Commission instructed member countries that, at least during price fluctuations or crises, the designated entity, which is the last-resort supplier, should be determined,” said Barbora Balunová, a partner at the LRP law firm and an expert in energy-related legislation.
The Slovak Spectator spoke with Balunová about the challenges of the energy crisis, decarbonisation, ESG reporting and more.
What questions did clients have for your law firm during the turbulence of the energy crisis?
The energy crisis was not just triggered by the Russian invasion of Ukraine in late February 2022. After the Covid pandemic ceased, the European Union saw that it was time to implement the decarbonisation package of green measures, which were to significantly change the rules of the energy market. The market responded with price fluctuations in electricity and gas markets. The first ones were already recorded in December 2021, when the implementation of these measures was announced. The invasion itself only escalated the surge in prices. Of course, prices escalated to heights we could never have imagined. Previously, by comparison, a megawatt of electricity cost about €60-€80 per MWh, in December it cost €112 due to green measures. The war pushed prices up further, to €500 or €600 per MWh in summer 2022.
L/R/P advokáti s. r. o.
Law firm launched by Rastislav Roško and Tomáš Lysina that provides legal services to domestic and foreign clients. In particular, L/R/P advokáti focuses on providing legal services in the energy sector, pharmaceutical and medical law, M&A, investment and trust funds, municipal law, real estate development and construction law, and litigation and arbitration.
If you would have told me at the time that some large energy suppliers would go bankrupt, I would have said that it can’t happen. But this actually happened in western Europe. So, the EU and individual countries had to react. Before, it took about two years to adopt new legislation at the European level, enabling all stakeholders to agree on it. During the energy crisis the period for passing a fully-fledged piece of legislation shortened to three to four months.
It was all the more challenging for us, because it is different to comment on the intention of new legislation and indicate the risks it may present to the client and to scrutinise a draft bill, where you have to be very careful about the individual wording. This was much more precise and time-consuming work. There was a big increase in work at that time.
Has the pace of work slowed down since then?
Yes. Decarbonisation regulations as well as the Energy Efficiency Directive have already been adopted. Earlier this year the Energy Performance of Buildings Directive was also adopted. This means that the legislative processes on European platforms are over and have now moved to national structures and states. It is a little easier there, as many of the requirements have already been communicated within the framework of European procedures and processes. On the other hand, in Slovakia it’s as if we have fallen asleep. It’s because we have sort of caught up with the fact that we have either inappropriately implemented previous green regulations or have gold-plated them.
Could you give any examples?
For instance, so-called guaranteed energy savings (GES), which means energy services guaranteed to achieve set savings. Under this contractual scheme, the investment costs to make an old building energy efficient are repaid from the achieved savings. For example, an entity pays 80 units for energy consumption in its building. After the building’s reconstruction, i.e. its thermal insulation, the replacement of old windows with new ones and the installation of more effective equipment, these costs decrease to 25 units. The entity pays 50 units of the saved costs to the company that carried out the reconstruction. Unlike in Slovakia, this scheme is extensively used in the Czech Republic.
Why?
I see the main difference in the setting of the legislation. In the Czech Republic the focus is on the goal, in this case the need to revitalise a given building energy-wise in order to meet the goals set by the directive. In Slovakia, the interpretation and approach to its transposition is rigid or literal, the meeting of requirements especially being in mind, but without having real effects on our real life. Up to this, gold-plating even further complicates the usage of this scheme. For example, in Slovakia, an entity cannot carry out any other interventions into a reconstructed building during the monitoring period, which takes 12 years. This is too long. In the Czech Republic they repeatedly adapted the respective legislation based on the experiences of the market.
What is the consequence in Slovakia?
In western European countries the public sector is the shop window for the renovation of buildings. They have made public buildings energy efficient via insulation, the installation of photovoltaic panels or heat pumps, or the creation of energy communities. In Slovakia, the shop window is the private sector, involving apartment buildings, retail premises and warehouses. Public buildings like hospitals, offices, libraries, dormitories and so on, which should be renovated to be more energy efficient, are not even mapped.
From 2027 onwards, we should gradually install local green electricity sources on our existing public buildings, and by 2029 we should basically have everywhere in place a pre-preparation to install local small-scale sources, which will provide electricity at the particular consumption site.
Decarbonisation is not just about reducing the material consumption of electricity, but goes hand-in-hand with changing the energy mix. In Slovakia, the problem is that we have large power plants while consumption is scattered across the country. So we need to invest heavily in transmission and distribution networks, and in their operational safety and stability. It is precisely these high costs that the European Union wants to avoid by building local green sources or creating energy communities. Another requirement is replacing natural gas with its green alternatives or electricity. We can generate the latter from green sources.
Is the reduction of energy consumption sufficiently supported in Slovakia?
I’m very critical in this respect. The reason is the subsidising of energy prices for households and selected consumers labelled by the government as vulnerable, like orphanages or senior homes. Slovakia has stopped the deregulation of energy prices, a topic of the so-called EU winter package from 2012, when it declared that it cannot imagine price deregulation for this group of consumers. The European Commission made a concession and Slovakia was given a window of several years to create a healthy competitive environment here, so that ordinary consumers could receive an offer that does not ruin them, and simultaneously allows them to choose the supplier. But while the Regulatory Office for Network Industries (ÚRSO) has the possibility of not carrying out price regulation when it considers it appropriate, and the state keeps across-the-board subsidising of the energy prices for this group of clients. The result is that they do not have the urge to reduce their consumption and behave efficiently.
Could you give an example?
At the end of last year, one of our clients with a very-energy intensive household considered the installation of a local green electricity source with a variation of battery storage. Our law firm was preparing contract documents for him. Technically, this solution could have been installed long ago. But it ended up not working out economically. It’s not worth it for him to invest in making his household more energy efficient this year and next year, and maybe even the year after that, even with money from the Renew Your House subsidising scheme. The reason is the subsidised electricity prices for all households in Slovakia.
Is it the case that the government has not even set energy poverty parameters in Slovakia?
Yes. Energy poverty is a big theme in the European Union, while we in Slovakia are not even able to determine which consumers should be under the protection of the state. But unless we go through the data-driven, thoughtful, managed actions to reduce electricity consumption, we may not meet some decarbonisation targets. We can produce a lot of green energy, but unless we are efficient in our consumption we will never achieve self-sufficiency. This then has an impact back on prices, because if you have stable energy commodity markets, the prices are predictable. Under such conditions, the free market can generate acceptable offers even for the most vulnerable consumers.
Does ESG reporting also address energy efficiency?
ESG reporting is a great hot topic and will remain so for the next 10 years in my opinion. I see it as a kind of guide for how to set up the environment at companies in a pleasant and sustainable way. This is because we have just one planet and can’t plunder it so that we not only have nowhere pleasant to live, but nowhere to live at all.
ESG stands for environmental, social and governance, and it’s about setting up large corporations so that people can work in them for many years and so that their management is transparent.
This year ESG indicators are being collected for the biggest companies, especially banks, and gradually this requirement will extend to other companies. It is certainly not comprehensive, but the assumption is that the remaining companies, under pressure of the requirements of financial institutions or their business partners, will proceed with ESG reporting too.
Currently our law firm is helping several clients to set up their inner environment to collect the required data next year.
What is the approach of companies to ESG reporting in Slovakia?
Many companies are afraid of it and want to avoid this obligation. But I would say that there’s nothing to be afraid of. In the beginning, they just need to have an open mind and say that they will be for it. Then they need to think, as the first step, whether they are big enough to need an internal ESG officer or whether an external advisor will be enough. The next challenging step is to assess where they have their core impacts, the biggest impact on the environment, their company and community around them. This means focusing on the collection and assessment of those data that they influence as a company, and set or change processes in the company accordingly. These data will be different for a company manufacturing tangible products or a consultation company. In the case of a manufacturing company, one question will be, for example, how to reduce CO2 production. A consultation company will target data security and its employees.
What questions do clients contact your law firm with, in terms of energy legislation?
They primarily ask about the explanation of specific energy regulations. The most recent, very interesting, case involved electricity storage facilities, specifically battery systems connected to regional distribution systems, as well as local ones. If you had a battery system solely connected to the regional distribution system, some of the tariffs and regulatory issues were quite different from the local distribution systems. Some were exactly the same, only they needed to be contractually and financially processed.
Which energy-related legislation in Slovakia do you consider problematic or in need of change?
Certainly legislation in the field of energy efficiency and decarbonisation. We really need either very precise revisions, or the adoption of new legislation on energy efficiency and on guaranteed energy services. This is not to mention by-laws, which we would need to basically redraft.
I see the very hasty passing of this legislation in Slovakia as a problem. For example, the government regulation that discusses subsidised electricity prices had already been amended twice before it came into force. On the one hand, there was a strong demand for its passage because there was a severe energy crisis. On the other hand, we maybe sometimes don’t give so much space in the legislative process to experts.
To what extent is energy legislation a matter for individual EU member states?
This is a very difficult and perhaps even academic question. This is because what we have seen in recent years is that we are basically building an energy union in Europe, as we want to be self-sufficient. Thus we need rules, which cannot be exactly the same in each country but must be aligned to a very high degree. The point is that, at the European level, dialogue is possible not only at the political level between the representatives of the states, but also at the technical level. What I perceive is that the European platform targets challenges and objectives. Concrete measures are then up to individual countries and their national regulatory offices.
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Publish date : 2024-11-01 18:15:00
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The post Slovakia’s energy legislation serves as inspiration for other EU countries first appeared on Love Europe.
Author : love-europe
Publish date : 2024-11-02 01:30:22
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