INTRODUCTION

Belgium has been hit, from the end of 2021 and throughout 2022, by multiple insolvencies and bankruptcies of energy suppliers. This rather unprecedented phenomenon was provoked by multiple ‘new factors’ which could be seen as ‘the straw that broke the camel's back’.

Not only did serious questions arise from those bankruptcies regarding the applicable regulatory framework in such cases, but it also shed the light on the changing realities of the energy market, notably for energy supply and some paradoxical effects of the liberalisation of those markets.

This contribution will analyse in §2 the main causes of the risks causing energy suppliers’ bankruptcies on the Belgian market(s). Then §3 will analyse some of the preventive actions taken by the Belgian authorities to address these risks. Next, §4 discusses briefly the regime of ‘supplier of last resort’, its challenges, and mitigation measures to protect consumers from the effects of an energy supplier's bankruptcy. Finally, §5 will provide a conclusion.

RISKS LEADING TO ENERGY SUPPLIER's BANKRUPTCIES

MARKET RISKS

Some risks are inherent to the activity of suppliers in every liberalised energy market, i.e. market risks. Among these risks, price volatility and the design of the Belgian energy markets can be considered as the main threats for energy suppliers.

Soaring Prices and Related Risks

After a period of relative stability on the electricity and gas markets, notably characterised by stable and low prices on wholesale (and therefore retail) markets, the average day-ahead prices of electricity in Belgium rose from €31.90 per MWh in 2020 (the lowest on record in the last 15 years) to €104.10 per MWh in 2021,2 while gas prices (long-term price of the Dutch TTF being used as reference) went from €9.40 per MWh to €96.70 MWh.

INTRODUCTION

The need to protect offshore energy infrastructure in the EU is obvious, especially following the high-profile sabotage of the Nord Stream Pipeline in September 2022. The new directive on Resilience of Critical Entities passed into law shortly after, in December 20222 and the time is surely ripe to consider whether the regulatory approach envisaged by that directive is sufficient given that the targeting of critical infrastructure in the context of war appears no longer to be a hypothetical, but now an actual problem.

The initial focus of this chapter is accordingly on the obligations of Member States in the context of the new directive. What is it that they must do having transposed it into national law? How do those obligations differ from those imposed by its predecessor, the Critical Infrastructure Directive 2008?

That relatively straightforward task complete, the focus shifts to the extent to which the new directive applies to (and thus hopefully protects) offshore energy infrastructure. This question should be examined from two perspectives. First, to what extent does the directive apply to offshore energy infrastructure? Second, to what extent does it apply to offshore energy infrastructure? The first perspective yields reassuring results, though the coverage of relevant infrastructure is perhaps not as comprehensive as might be hoped. The second perspective, however, gives rise to deeper concerns. In short, the wording of the directive does not offer reassurance that infrastructure that is not only critical but also highly vulnerable due to its location offshore is clearly within its ambit.

INTRODUCTION

Since the early 2000s, the future of Europe's energy system has been on top of the political agenda, particularly after the conclusion of the Paris Climate Agreement in December 2015 and the Russian attack on Ukraine on 24 February 2022. Climate change, security of supply and energy prices are dominating the debate, forming the cornerstone of the energy trilemma. Transitioning from a fossil fuel-based energy system to a net-zero one is the EU's new mantra. This move started after the signing of the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) in 1997 and will continue to pre-occupy Europe for the coming decades independent of the energy market turmoil, due to the Ukraine war. Compared to other regions, the European Union (EU) has early on become a key player in climate policy. For example, in 2005, the EU took the lead by establishing a CO2 emissions trading system covering installations in the energy sector and manufacturing industry of its Member States (the so-called EU Emissions Trading System – EU ETS).

The EU has viewed the energy transition as an opportunity and a necessity for a new growth agenda for Europe which has led to the adoption of the 2050 climate neutrality goal and the European Green Deal (EGD).

The European Energy Law Report XV presents a selection of the most important developments in the field of international, European Union (EU) and national energy and climate law as discussed at the 32nd and 33rd European Energy Law Seminars, which took place in The Hague (the Netherlands) in May 2022 and November 2023 respectively.

Although a wide range of topics were discussed at the seminars, four general themes emerged from the presentations. They range from internal market and climate change developments (Part I), the governance of energy suppliers and the supply chain (Part II), the relationship between the EU and third countries (Part III) and, finally, challenges affecting the energy system and system security (Part IV). These issues are discussed in fourteen chapters divided over four parts of this volume. Noticeably, the impact of the war in Ukraine is a recurring matter in several chapters.

INTERNAL ENERGY MARKET AND CLIMATE CHANGE: JUDICIAL AND LEGISLATIVE DEVELOPMENTS

Part I offers a review of some landmark legislative and judicial developments with regard to the internal energy market and climate change. Apart from a review of EU case law in the energy sector, this part also offers a review of the effects of climate change litigation on energy companies and a review of the EU ‘Fit for 55’ legislative package.

INTRODUCTION

This chapter discusses the legal challenges faced by the Swiss TSO (transmission system operators), Swissgrid, located in a non-European Union (EU) country that is geographically embedded in the EU and part of the Europe-wide interconnected electricity transmission system, with a particular focus on interconnectors and on the TSO. TSOs are responsible for the safe and secure operation of the high voltage grid, which is much like a national highway. A TSO is thus responsible for the transmission of energy from electricity generators such as traditional power plants that make use of hydropower, nuclear or fossil fuels and/or generators that make use of large-scale wind or solar energy to regional or local electricity distribution system operators, operating lower voltage levels. In Switzerland, the national TSO, Swissgrid, has faced particular challenges as a consequence of EU electricity law and the absence of an intergovernmental agreement between the EU and Switzerland on electricity cooperation. At the time of writing of this chapter, such an agreement is under negotiation, but its conclusion is – obviously – not guaranteed.

In order to understand the current challenges, the chapter begins with a short overview of the legal framework governing the electricity markets in the EU and in Switzerland, focussing notably on the liberalisation process with respect to the transmission system in the EU and Switzerland and on the EU law governing cross-border electricity infrastructure (below §2).

INTRODUCTION

With many European countries moving away from fossil energy fuels as part of the energy transition, and the tragic war in the Ukraine, 2021 and 2022 in particular, were characterised by increasing and even soaring electricity and gas sourcing prices and subsequent retail prices. The Netherlands did not come out unscathed. Seven out of the then 55 licensed household energy suppliers, or 13% of all licensed suppliers, were declared bankrupt or declared to be unable to supply energy. These failures led the Dutch national regulatory authority, the Authority for Consumers and Markets (ACM), to revoke the supply licenses of these energy suppliers, triggering a process whereby the affected household consumers were transferred to a Supplier of Last Resort (SoLR).

These failing energy suppliers were facing several challenges. First, many of these supplied electricity or gas on a prepaid basis. Another problem was an apparent mismatch between the energy suppliers’ sourcing costs and their retail revenues, as many household consumers were supplied under a fixed-term and fixed-tariff supply agreement. Increasing and rising or even soaring wholesale energy prices also led to wholesale parties enforcing margin calls under the sourcing agreements on the energy suppliers. The financial nature of this mismatch and these margin calls were the main, but not the only, cause of the demise of these seven suppliers in 2021. In the end, both household consumers and small and large businesses faced higher retail prices. This was not just the case for household consumers who were switched to a SoLR, which generally signed those consumers up under less favourable energy supply tariffs. Most household consumers and small and large businesses with permanent-term energy supply agreements also faced (steep) increases, but these generally did not take effect immediately.

INTRODUCTION

Article 194 TFEU, which grants the EU a competence in the field of energy, begins with a reference to the ‘context of the establishment and functioning of the internal market’. In EU internal market terms, energy is a good, and to trade in energy is to trade in goods. This also applies where the EU concludes an external agreement that covers internal market issues including trade in energy. The Agreement on the European Economic Area (EEA) provides a useful illustration in this respect. The EEA Agreement links the EU and its Member States with three of the at present four States of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein and Norway (to the exclusion of Switzerland). The EEA Agreement extends notably the EU's internal market rules (free movement and competition law) to the three EEA EFTA States. Part II of the EEA Agreement deals with the free movement of goods. Next to chapters on agricultural and fishery products, customs-related matters and trade facilitation as well as coal and steel products, Chapter 4 deals with ‘Other rules relating to the free movement of goods’. Here, Article 24 EEA deals with energy. It states that ‘Annex IV contains specific provisions and arrangements concerning energy’. Annex IV lists the numerous measures of EU energy law that are relevant for EEA purposes and that, through this list, are part not only of EU law but also of EEA law.

INTRODUCTION

The electricity system is undergoing a double transition: rapid decarbonisation and increasing digitalisation. These two transitions are intimately linked. The supply and demand of electricity must be balanced at all times, but the growing share of renewable energy technologies, with complex and intermittent generation patterns, means that this task can only be performed through digital processes. Digitalisation is thus a precondition for the operation of the future decarbonised electricity grid. However, the digitalisation of the electricity grid also renders it more vulnerable to cyberattacks. A cyberattack on the electricity system could cause significant economic damage. In the worst-case scenario, it could lead to prolonged power outages, causing widespread disruption, and putting human lives at risk. While the EU's electricity system has not yet been hit by a large-scale cyberattack, the risk is far from hypothetical. In 2015 and 2016 cyberattacks on substations in the Ukrainian electricity grid caused blackouts that left over 225,000 people without power. There is evidence of intrusions in the computer systems of energy companies in the European Union and the United States. In addition, during the Covid-19 pandemic several other critical infrastructure systems fell victim to cyberattacks.

Cyberattacks are a relatively new threat to the electricity system. As a result, the policy and regulatory landscape of cybersecurity for the electricity system is new and developing quickly.

INTRODUCTION

The 1992 UN Framework Convention on Climate Change (UNFCCC) recognised the need to reduce greenhouse gas (GHG) emissions. More detailed goals and legal measures to reach these goals were developed by the Conference of the Parties (COP) of the UNFCCC and have been included in additional agreements like the Kyoto Protocol and the Paris Agreement. Also the 28th COP, organised in Dubai in December 2023, stressed the need to reduce GHG emissions and limit the use of fossil fuels. Since World War II, developed countries have relied on the use of fossil fuels in (nearly) all economic sectors, including electricity generation. Globally, electricity generation is responsible for over a quarter of GHG emissions5 and thus attempts are made to decarbonise the power system. A key instrument is to use renewable energy sources as a primary source in power generation instead of fossil fuels. Many countries need to rely on solar and wind energy to replace fossil-based power generation. However, solar and wind are intermittent in nature. This variability poses challenges for the availability of electricity as well as the balance of the electricity network which operates within limited voltage and frequency values.

The EU and its Member States are party to the UNCCFC and have issued a wide range of measures to combat CO2 emissions, ranging from permitting CO2 emissions and trading CO2 emission rights via the EU Emissions Trading System to obliging Member States to consume specific levels of renewable energy sources.

INTRODUCTION

It is no exaggeration to say that the age of corporate climate litigation is upon us. This is not only with respect to the number of cases filed globally against companies, lawsuits that implicate companies, and even pre-emptive lawsuits filed by companies. Such lawsuits affect companies in unprecedented ways: their valuation, their governance, and in turn, their role as key agents of climate mitigation and adaptation. This is new; a decade back, stakeholders in climate policy and governance were far more invested in the role of international institutions and the nation state. Now there are dedicated databases and research centres on the role of corporations. There are several explanatory factors behind this interest, including: dilution of reliance on the outcome of protracted negotiations under the United Nations Framework Convention of Climate Change (UNFCCC), a discursive shift from voluntary action to liability in scholarly commentary and popular outlets as evidence accumulates in impending ecological change, publicised evidence of undisclosed reports by companies, and the emergence of attention on ‘Carbon Majors’ as state-like actors in climate change. From the perspective of material or real-world effects of corporate climate litigation, there also appears to be a realisation that obtaining material remedies such as injunctions or damages is not the only goal of such cases. On the contrary, the indirect effect of driving behavioural change in corporations through monitoring sustainability claims, valuation of shares, and changes in investment portfolio appears to be the driving force behind such cases.

INTRODUCTION

Developments in energy markets are reflected, sometimes only after a while, in the cases that are submitted to the European Union courts in Luxembourg. Provisions of the Treaty on the Functioning of the European Union (TFEU), such as the rules governing State aid or environmental protection, may have to be interpreted in light of new policy objectives. Furthermore, the validity of new EU legislative measures (regulations or directives) may be challenged, e.g. on the ground that a proper legal basis in the TFEU is lacking. This is one of the reasons why many disputes brought before the European Union courts have an institutional dimension, raising questions about the division of competences between the European Union and its Member States, about the balance of power between EU institutions (Parliament, Council, and Commission), or, more specifically, about the dividing line between the powers of the legislator and those of the energy regulator or between the powers of the European regulator and those of the national regulator in each Member State.

This chapter is organised as follows. It begins with the topic of energy solidarity (§2), followed by a discussion of several rulings relating to the internal market (§3). Subsequently, in §4, I will focus on appeals against decisions by the Agency for the Cooperation of Energy Regulators (ACER). Next, it addresses a few cases concerning EU competition law (§5) and the EU rules concerning State aid (§6). In §7, the focus will be on investment arbitration under the Energy Charter Treaty (ECT).