HAN within Smart Grids Regulatory Report

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Table of Contents

1. Introduction ................................................................................................ 5

2. HAN in the European law .......................................................................... 5

2.1. Autonomous HAN in EU legal regulations ........................................... 5

2.1.1. Autonomous HAN as energy efficiency measure ............................ 5

2.1.2. Potential for HAN support by the Member States ............................ 8

2.2. HAN as Smart Grid component ............................................................. 9

2.3. HAN as a platform connecting distributed energy resources ......... 12

2.4. The role of power system operators in HAN deployment ................ 14

2.5. Smart meters for other utilities ........................................................... 15

2.6. Privacy and security of data within HAN ........................................... 16

2.6.1. Legal basis for the right to the protection of privacy in the

European Union ............................................................................................. 16

2.6.2. Personal data and legal premises for its processing within HAN 17

2.6.3. Data processing security .................................................................. 18

2.7. HAN and the provisions concerning electronic communications ... 19

2.8. HAN and information society services ............................................... 21

2.9. Interoperability and preventing disruptions in communication ...... 22

2.10. HAN in European legislation – a summary .................................... 24

3. HAN in country legislation ...................................................................... 26

3.1. HAN and national legal provisions – general comments ................. 26

3.2. Current legal status in respect of smart meter installation .............. 26

3.3. Future content of legal regulations concerning Smart Grids .......... 28

3.3.1. HAN deployment model – ownership of equipment and

implications from the standpoint of division of responsibility ................. 29

3.3.2. Ownership of AMI meter and HAN devices ..................................... 30

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3.3.3. Division of responsibility for proper operation of HAN ................. 31

3.3.4. Interoperability of AMI meter and HAN ........................................... 31

3.3.5. Interoperability within HAN .............................................................. 32

3.3.6. Measurement Information Operator ................................................ 33

3.4. Legal barriers for the use of HAN for the purpose of control and

utilization of distributed energy resources ................................................. 35

3.4.1. Significance of the utilization of distributed energy resources ... 35

3.4.2. Demand side response – tariff schemes ......................................... 35

3.4.3. Demand side reaction – IBPs ........................................................... 37

3.4.4. Micro-generation and energy storage – legal barriers .................. 38

3.4.5. Entities on the market of distributed energy resources and their

relations with the consumer ......................................................................... 39

3.4.6. DSO role in terms of balancing and provision of ancillary services

40

3.5. Other utilities within HAN .................................................................... 41

3.6. Processing of measurement data by HAN service provider ............ 42

3.6.1. Privacy and security of personal data ............................................. 42

3.6.2. Potential privacy-related risks for HAN operation ......................... 43

3.6.3. Secrecy of measurements ................................................................ 44

3.7. Application of Telecommunications Law provisions ....................... 46

3.8. HAN project funding ............................................................................. 47

3.8.1. HAN development financed through energy company tariff ........ 47

3.8.2. Energy Efficiency Law – system of energy efficiency certificates

48

3.8.3. VEET as an example of a support system promoting modern

energy efficiency solutions .......................................................................... 50

3.8.4. Energy Efficiency Law – role model obligation of the public sector

51

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3.8.5. Energy efficiency in buildings ......................................................... 51

3.8.6. Direct financing methods: subsidies and earmarked loans from

the National Fund for Environmental Protection and Water Management

(NFOŚiGW) ..................................................................................................... 52

3.8.7. Tax reliefs and exemptions .............................................................. 54

3.9. Summary in scope of national legislation ......................................... 56

Attachment – summary of required and recommended changes in the

legal system ................................................................................................... 57

Bibliography ................................................................................................... 60

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1. Introduction

According to the Market and Social Report, Technological Report and Economic Report,

Home Area Network can be analyzed in two aspects. First, HAN development can be

regarded as a measure applied to achieve individual energy efficiency effect on the part of

the user, even in the case of autonomous HAN1, without two-way communication via AMI

meter. Second, in view of the ultimate implementation of HAN as a cluster of devices

cooperating with the power grid and exchanging information with AMI meter, HAN can be

considered an energy efficiency tool not only from the standpoint of individual user, but from

the perspective of the entire power system as well2. Consequently, the Legal Report contains

the discussion of national and EU acts of law, as well as the ‘soft law’ documents, creating

regulatory framework for the delivery and provision of services related to HAN deployment as

an individual energy efficiency measure. Further, the Report presents the analysis of legal

aspects pertaining to the use of HAN to establish a new type of energy sector services,

based on active demand management with the use of distributed generation.

2. HAN in the European law

2.1. Autonomous HAN in EU legal regulations

2.1.1. Autonomous HAN as energy efficiency measure

In principle, development of autonomous HANs does not encounter explicit regulatory

barriers understood as a prohibition of the development of such networks. It is left completely

at the discretion of the owner of a piece of property or a dwelling unit to decide whether they

wish to have autonomous HAN developed. For these reasons, terms of cooperation, scope

of data processed, consequences of default, and other legal aspects of HAN development by

the provider for the user are in the domain of the freedom of contracting.3

EU institutions usually perceive HAN as a Smart Grid component, which is why most HAN-

related issues are dealt with under the category of extended Smart Grid considerations. In

the light of Community regulations, autonomous HAN - i.e., HAN that is not linked with the

smart meter - is perceived predominantly as an individual measure in the area of energy

efficiency targets. In that regard, European legal provisions are ‘soft’ in character, i.e. they

encourage support for the deployment of HAN components, but without regulating detailed

1 Cf. AlertMe system, Economic Report, p. 8

2 Cf. PG&E system, Economic Report, p. 9

3 In this Report, the notion of HAN service provider or HAN provider should be understood broadly:

both as a supplier of goods – devices that HAN is made up of, and as an entity which actively supports the user in managing the devices connected through HAN.

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technical conditions or ‘hard’ obligations to use HAN equipment (such as, for example, the

obligation to use energy saving light bulbs.)

Community target in the area of energy efficiency was set under the Climate and Energy

Package; it requires energy efficiency improvement of 20% by 2020. However, indicative

intermediate target had been set in the previously adopted Directive 2006/32/EC at the level

of 9% savings by 20164. Additionally, according to Directive 2010/31/EU on the energy

performance of buildings, Member States are required to ensure that by December 31, 2020,

all new buildings shall be nearly zero-energy consumption buildings, i.e. buildings with very

high energy performance, where nearly zero or very low amount of energy required should

be covered to a very significant extent by energy from renewable sources, including energy

from renewable sources produced on-site or in the vicinity5. In the case of buildings occupied

or owned by public authorities, the deadline is even shorter and falls on December 31, 2018.

Furthermore, Member States have the obligation to develop plans to increase the number of

nearly-zero energy consumption buildings.

HAN was clearly referred to as a tool appropriate for achieving the above targets in Annex III

to Directive 2006/32/EC, and in Article 8 of Directive 2010/31/EC. Specifically, in Annex III to

Directive 2006/32/EC, under efficiency improvement measures in the sector of multi-family

residential buildings and public buildings, ‘other equipment and appliances’ are listed,

including for example combined heat and power appliances, new efficient devices, time

control for optimized energy use, installations of capacitors to reduce reactive power,

transformers with low losses, etc. In Article 8 of Directive 2010/31/EC, apart from the

obligation of the Member States to encourage the introduction of intelligent metering

systems, it is stated that Member States may furthermore encourage the installation of active

control systems such as automation, control and monitoring systems that aim to save

energy. If the obligation to adopt (financial) incentives with regard to the installation of

intelligent metering systems has been phrased rather categorically (with reference to the

principles resulting from liberalization directives), the wording of the Directive indicates that

the application of incentives in the form of automation, control and monitoring systems that

aim to save energy is optional for the Member States6. Bearing in mind such nature of the

obligation formulated in Directive 2010/31/EC, it must be stated that at the level of European

directives this provision is the most explicit reference to the subject matter discussed in this

Report. Firstly, despite its optional nature, it gives Member States the grounds for introducing

relevant HAN support mechanisms. Secondly, it can serve as the basis for the adoption of

certain financial support measures at the European level and the development of EU acquis

in this area. As far as incentive systems are concerned, they should be understood as

financial support schemes such as preferential loans, tax instruments (reliefs, exemptions),

or subsidies.

4

Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services and repealing Council Directive 93/76/EEC (Official Journal of the European Union, 27.4.2006. L 114. p. 64), hereinafter: Directive 2006/32/EC. 5

Directive 2006/31/EC of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings (Official Journal of the European Union, 18.6.2010. L 153. p. 13), hereinafter: Directive 2006/31/EC. 6 M. Swora, Smart Grids after the Third Liberalization Package: Current Developments and Future

Challenges for Regulatory Policy in the Electricity Sector, Yearbook of Antitrust and Regulatory

Studies, Vol. 4(4) 2011, p. 12.

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The issue of delivery of energy management services is also subject to regulations set forth

in Directive 2009/72/EC concerning common rules for the internal market in electricity; in

Article 3, paragraph 11 of this Directive it is stated that, in order to promote energy efficiency,

Member States or regulatory authorities shall strongly recommend that electricity

undertakings optimize the use of electricity, for example by providing energy management

services7. In contrast to Directive 2010/31/EC, in this case European legislator decided that

energy undertakings shall be the addressee of obligations to be adopted by Member States.

For the purpose of this Report it should be agreed that the wording of this provision does not

entail the obligation to provide HAN infrastructure; all it requires is that appropriate measures

should be undertaken to allow for the utilization of its potential in terms of optimization of

electricity consumption and, more broadly, energy efficiency promotion. The provision set

forth in Article 3, paragraph 11 of Directive 2009/72/EC should be interpreted with an

important aspect related to execution. Thus, in the implementation of this provision, Polish

legislator should adopt such solutions which, realizing its objectives, will for example serve

as the basis for the provision of energy management services by energy undertakings (or

third parties) for the third parties (end users.)

Status of HAN as the tool for achieving energy efficiency targets is confirmed in European

Commission documents. In the Communication on mobilising Information and

Communication Technologies (ICTs) to facilitate the transition to an energy-efficient, low-

carbon economy, the Commission indicated energy efficiency potential resulting from the

introduction of buildings and energy management systems, intelligent metering systems

technology, solid-state lighting, smart sensors and optimization software8. By the same

token, in Commission Recommendation on mobilising Information and Communication

Technologies (ICTs) to facilitate the transition to an energy-efficient, low-carbon economy

following the Communication, the Commission indicated that intelligent metering systems

and Smart Grids constitute important elements for maximizing energy savings in buildings,

wide utilization of electric vehicles, attainment of efficient energy supply and transmission,

and integration of renewable energy sources9. For those reasons, European Commission

recommended that the Member States implement, inter alia, the strategy of broadband

development with the purpose to facilitate monitoring of energy consumption, distribution and

generation and to facilitate the management of those processes, or engage all relevant

stakeholders in pilot and demonstration schemes in the area of intelligent metering systems

and Smart Grids.

It must be noted that energy efficiency requirements imposed by the EU could potentially be

exacerbated. At present, the work on the draft of the new energy efficiency directive to

7 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 (Official Journal

of the European Union, 14.08.2009. L 211. p. 55), hereinafter: Directive 2006/72/EC. 8 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions of 12.3.2009 on mobilising

Information and Communication Technologies (ICTs) to facilitate the transition to an energy-efficient,

low-carbon economy [COM(2009) 111]. 9 Commission Recommendation of 9.10.2009 on mobilising Information and Communications

Technologies (ICTs) to facilitate the transition to an energy-efficient, low-carbon economy.

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replace Directive 2006/32/EC10, inter alia, is being finalized. According to the draft directive,

among other things, retail energy suppliers or energy distributors will have to obtain savings

in the energy sold equivalent to 1.5 percent, volume-wise. Furthermore, it is also provided in

the draft that public administration will have to purchase the Best Available Technologies

(BAT) in terms of energy savings, and reduce the quantity of energy in the buildings

occupied by the administration. It is worth adding that public sector function may turn out to

be extremely important from the standpoint of HAN deployment. In EU Member States and in

the United States, various initiatives are taken (including legislative ones) to introduce e.g.

modern automation and measurement equipment in public buildings11. This course of action

is also recommended with regard to Polish public administration and it could be introduced

through the implementation of the model role of the public sector, referred to in Article 5 of

Directive 2006/32/EC. Implementation which was carried out in that respect in Energy

Efficiency Law, due to lack of sanctions for non-compliance, for example, does not lead to

effective execution of public sector obligations12.

2.1.2. Potential for HAN support by the Member States

As even preliminary findings indicate, European law does not regulate the obligations in the

area of development and application of HAN as an individual energy efficiency measure in a

direct way. Yet, HANs can be developed and utilized by users and technology providers –

including energy undertakings. HAN qualification as an energy efficiency measure allows

Member States to use a big array of regulatory instruments supporting the implementation of

such measures.

Imposing certain obligations upon energy undertakings is one of the means the Member

States may apply in order to promote HAN. Under Article 10 of Directive 2006/32/EC,

Member States may impose public service obligations relating to energy efficiency on

undertakings operating in the electricity and gas sectors. Additionally, in Article 3, paragraph

2 of Directive 2009/72/EC it is provided that Member States may impose upon undertakings

operating in the electricity sector, in the general economic interest, public service obligations

which may relate to security, including security of supply, regularity, quality and price of

supplies and environmental protection, including energy efficiency. It is stated in the Directive

that such obligations shall be clearly defined, transparent, non-discriminatory, verifiable, and

shall guarantee equality of access for electricity undertakings of the Community to national

consumers. As an energy efficiency tool, HAN will also be eligible for support under the

system prescribed in the new draft energy efficiency directive.

Another implication ensuing from Community regulations for HAN development (including

autonomous HAN) is, first of all, creating potential for technology development by introducing

energy efficiency requirements, including nearly zero energy consumption buildings, and

10

http://www.euractiv.pl/energia-i-srodowisko/artykul/ostateczne-negocjacje-ws-dyrektywy-o-

efektywnoci-energetycznej-003498 11

E.g., the initiatives undertaken by General Services Administration in the United States, referring to American Recovery and Reinvestment Act of 2009, see: http://www.gsa.gov/portal/category/100731; 12

Energy Efficiency Law of 15 April, 2011 (Journal of Laws of the Republic of Poland, no 94, item 551), hereinafter: Energy Efficiency Law.

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secondly, allowing Member States to take efforts aimed at promotion and development of

this technology. Pursuant to Directive 2006/32/EC, Member States may support the market

of efficiency services by means of financial instruments such as the funds for subsidizing the

implementation of energy efficiency programs or other measures for energy efficiency

improvements. Therefore, under Community legal framework, financial aid of the State in

HAN area can be regarded as permissible based on Article 107, paragraph 3, point c) of the

Treaty of the Functioning of the European Union (hereinafter: the Treaty.) Such aid should

be regarded as support for the implementation of important projects of common European

interest.

2.2. HAN as Smart Grid component

It is ultimately assumed in the discussions on HAN model that there will be communication link between the power grid and HAN via the smart meter. HAN is supposed to play the role of Smart Grid component enabling the utilization of technology potential originating from the possibility of two-way communication within the network. It is self-evident that HAN connectivity within the Smart Grid is contingent upon the installation of AMI meters for two-way communication. Legal basis for the development of Smart Grids and smart metering systems is set forth in the provisions of Directive 2009/72/EC13. As prescribed in Annex I to the Directive, dedicated to consumer protection measures, Member States are obliged to ensure the implementation of smart metering systems. Member States have to develop the schedule of implementation of such systems and ensure interoperability of those systems. These systems should enable consumers to actively participate in electricity supply market. Following implementation evaluation in the Feasibility Study, Member States should ensure that by 2020 at least 80% of consumers are equipped with smart metering systems. Clarifying those obligations, the EC stated the following in its interpretative note: in implementing these provisions, Member States shall give consideration to interoperability of smart meters in their jurisdiction. Moreover, they shall also ensure observance of relevant standards and best practices, and have regard to the significance of internal energy market development. When dealing with smart meter implementation issues, Member States shall have regard to the secrecy of information for consumers, as provided for in Article 16 of the Treaty of the Functioning of the European Union14.

By the same token, according to Article 16 of Directive 2009/28/EC, Member States shall take the appropriate steps to develop intelligent networks in order to allow for the secure operation of the electricity system as it accommodates the further development of electricity production from renewable energy sources15.

Thus, Community regulations provide for meter replacement aimed at mass deployment of smart metering systems, which can be the basis for HAN integration within Smart Grids.

13

The Directive distinguishes between the terms of Smart Grid and intelligent metering systems, but does not define them in detail, more in: Swora M., Intelligent grid unfinished regulation in the third EU energy package, Journal of Energy and Natural Resources Law, vol. 28(4)2010, pp. 465 – 480. 14

Commission staff working paper: Interpretative note on directive 2009/72/EC concerning common rules for the internal market in electricity and directive 2009/73/EC concerning common rules for the internal market in natural gas retail markets, Brussels, 22 January, 2010, p. 9. 15 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC (Official Journal of the European Union, 5.06.2009. L 140. p. 16), hereinafter: Directive 2009/28/EC.

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Detailed technical and organization requirements for the development of smart metering systems are specified in recommendations and other documents without binding implementation force issued by the European Commission and satellite bodies.

Regardless of the above, according to Directive 2006/32/EC on energy end-use efficiency and energy services, Member States shall ensure that, in so far as it is technically possible, financially reasonable and proportionate in relation to the potential energy savings, final customers for electricity, natural gas, district heating and/or cooling and domestic hot water are provided with competitively priced individual meters that accurately reflect the final customer’s actual energy consumption and that provide information on actual time of use. Nota bene, this Directive regulates a number of obligations pertaining to information aspects of electricity bills (Article 13), which are so specific that they could be used as the basis for decision on the implementation of smart metering system in AMR technology in Sweden, for example.

The obligation of Smart Grid deployment enabling cooperation with HAN will be updated once the new energy efficiency directive comes into force. Key obligations associated with Smart Grid development and provided for in the the new draft energy efficiency directive include:

Obligation of the Member States implementing smart meter deployment to ensure that energy efficiency targets and benefits obtained by end users be fully addressed when defining minimum meter functions and obligations imposed on market participants,

Obligation of electricity meter operators to ensure that, upon request from the end user, the meter has the capacity to make billing settlements including electricity generated at end user’s premises and supplied to the network. Member States shall guarantee that if an end user should file such a request, measurement data regarding end user’s generation or consumption of electricity in real time will be made available to a third party operating on behalf of the end user,

Member States shall introduce the requirement upon which, at the request of the end user, the information concerning their past energy billing and consumption is made available to energy service supplier designated by the end user,

Measurement data shall be provided to users free of charge,

Furthermore, Member States shall ensure that energy sector national regulatory bodies properly address energy efficiency in their decisions concerning gas and power sector infrastructure, and in particular, that network tariffs and regulations provide grid operators with incentives that encourage the offer of ancillary services for users, so as to enable the implementation of energy efficiency measures in the context of systematic deployment of the Smart Grid.

Currently, draft directive is processed under legislative procedure in the EU; the process has not been completed and Member States have submitted a number of comments to the draft, therefore it would be difficult to make predictions as to the final shape of the new energy efficiency directive and its coming into force. Yet, it is almost certain that the new directive will not prescribe such resolute measures as those initially proposed by the European Union.

Under binding EU regulations there are no uniform requirements for smart meters. Only in the draft energy efficiency directive is there an obligation to provide billing settlements for the energy supplied to the network, and to give access to real time data to a third part acting on behalf of the end user. Nevertheless, detailed requirements for smart meters can be determined on the basis European Commission Recommendation (with the assumption of potential modifications in the future.) In Commission Recommendation on preparations for

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the roll-out of smart metering systems16 it is indicated that smart meters should enable the execution of the following HAN-related functions, inter alia:

Provide readings directly to the consumer and any third party designated by the consumer – It requires a standardized interface which would enable energy management solutions in ‘real time’, ensuring secure transfer of data with the use of the interface selected by the user. This function should be the key element of the smart meter, as it is indispensable for running demand response services, taking ‘online’ energy saving decisions, and effective integration of distributed energy sources. Member States are recommended by the Commission to ensure that final customers using smart metering systems are equipped with a standard interface which provides visualized individual consumption data to the consumer.

Update the readings frequently enough to allow the information to be used to achieve energy savings – Rate of end user data updates must allow for the possibility of verification of results of energy saving actions, with regard for the response time of the energy-consuming or energy-producing products. Update rate of every fifteen minutes at the minimum is recommended. It is also recommended that smart metering system should be able to retrieve historic data to make it possible to calculate costs related to consumption.

Support advanced tariff systems – Smart meters should include advanced tariff structures, time-of-use registers and remote tariff control, which should help consumers and network operators to achieve energy efficiencies and save costs by reducing the peaks in energy demand. This functionality, together with the functionality of access to real time energy consumption data, is expected to be a key driving force for improving energy efficiency. It is strongly recommended by the Commission that smart metering system allows for automatic transfer of information about advanced tariff options to the final customer, via standardized interfaces.

Allow remote on/off control of the supply and/or power limitation – This functionality provides additional protection for the consumer by allowing grading in the limitations.

Provide secure data communication – Commission points out that high levels of security are essential both in scope of communication between the meter and the operator, and communication between the meter and any appliances that belong to the consumer. For local communication within consumer’s premises, both privacy and data protection are required.

Fraud prevention and detection – It is imperative to provide mechanisms to prevent fraud as well as hacking access.

Provide import/export metering – This functionality is necessary to allow development of micro-generation.

Concluding, two key requirements for appropriate cooperation with smart meters can be identified in the context of HAN. First, it is necessary to ensure technical standards allowing for communication between the smart meter and HAN home gateway. Open communication standards are of key significance from the standpoint of establishment of competition on the market of HAN services. In that regard, one must refer to Article 3, paragraph 2 of Directive 2009/72/EC, stating that in the case of implementation of long-term planning in scope of, inter alia, energy efficiency or demand management, Member States should take into account the possibility of third parties seeking access to the system. In the context of AMI project, this will mean access obligation, not so much in the sense of access to the power system itself, but to measurement data and communications sent with the use of Smart Grids. Provision of access to this data to third parties who perform services for the user must be taken into account during the preparation of long-term plans for AMI system deployment. The other key aspect of HAN is to ensure security of communication and privacy of data

16

Commission Recommendation of 9 March, 2012, on preparations for the roll-out of smart metering systems, 9.3.2012, (2012/148/EU.)

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during communication within HAN and between HAN and AMI meter, as described further in this Report.

2.3. HAN as a platform connecting distributed energy resources

Smart Grid deployment paves the way for practical development of the concept of distributed energy resources. Distributed energy resources include small generation sources connected directly to distribution network (‘distributed generation’), reduction or shift in energy demand period on the demand side (‘demand response management’), and local energy storage (‘distributed power’)17, such as electric cars, batteries, etc. In this context, HAN becomes an instrument connecting generation, storage and receiving elements into one home energy management system, which communicates with the power system and thus enables the active user, who at the same time is a micro-producer, not only to play the role of an object on the power market, but the role of its active participant as well. An opportunity for the user to take advantage of the benefits ensuing from active participation in electricity market may thus potentially ensure economic viability of HAN installation.

As mentioned above, the capacity for active demand management is among key functionalities to be made feasible thanks to the smart meters. Such meters are also supposed to enable servicing of active users who are electricity producers (‘prosumers’.) Under Community law, development of active demand and distributed generation management mechanisms is not an obligation imposed on the Member States, but these mechanisms are recommended as a tool allowing for the implementation of Member States obligation to ensure security of supply and create competitive energy market. Development of distributed generation is an official policy of the European Union18.

Directive 2005/89/EC19 explicitly encourages Member States to develop such energy market instruments. In Article 3 of Directive 2005/89/EC it is stated that Member States shall ensure a high level of security of electricity supply by taking the necessary measures. In the choice of the measures, Member States may (optional measure) take account of the importance of encouraging energy efficiency and the adoption of new technologies, in particular demand management technologies, renewable energy technologies and distributed generation. In

turn, Article 5 of Directive 2005/89/EC contains the requirement upon which Member States shall maintain permanent balance between electricity demand and supply. To that end, Member States may, inter alia, introduce provisions facilitating new generation capacity and the entry of new generation companies on the market; remove barriers that prevent the use of interruptible contracts or the conclusion of contracts of varying lengths for both producers and customers, or encourage the adoption of real-time demand management technologies such as advanced metering systems. This directive has been implemented in the Polish legal system, but not to the extent which would have high significance for HAN development.

17

T. Skoczkowski, Rozwój polskich regulacji prawnych w aspekcie rozproszonych źródeł energii [Development of Polish legislation in the aspect of distributed energy sources], materials from the seminar entitled: Integracja generacji rozproszonej z Polskim Systemem Elektroenergetycznym, [Integration of distributed generation with Polish Power System], Warsaw, 19 April, 2007, available at: http://www.kape.gov.pl 18

European Commission: New ERA for electricity in Europe - Distributed generation: key issues, challenges and proposed solutions. EUR 20901, Brussels 2003. 19

Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment (Journal of Laws of the European Union, 18.01.2006. L 33. p.22), hereinafter: Directive 2005/89/EC.

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There are other provisions, e.g. those set forth in Directive 2009/72/EC, which explicitly refer to the mechanisms the Member States are to adopt in order to develop distributed generation, which in this directive is defined as ‘generation plants connected to the distribution system’. According to Article 7, paragraph 3, Member States shall ensure that there are specific authorization procedures for small decentralized and/or distributed generation, which take into account their limited size and potential impact. According to Article 36 of Directive 2009/72/EC, it is the obligation of regulatory authorities to foster integration of large and small-scale production of electricity from renewable energy sources and distributed generation in both transmission and distribution networks.

Any action aimed at the activation of services associated with electricity demand reduction or distributed generation development can be considered – as in the case of HAN – as an instrument for energy efficiency and security of supply improvement, which can be implemented by the Member State as an optional measure. The discussion of the measures a Member State can implement to achieve those goals, presented above with regard to HAN, remains in force, in particular, as regards certain obligations to be imposed upon energy undertakings and state aid issues.

Coming into effect of the new energy efficiency directive may be a decisive factor for the implementation of mechanisms allowing for the development of distributed energy resources. According to draft provisions, Member State shall ensure that the regulations pertaining to the network, and network tariffs established or approved by energy sector regulatory authorities, meet the criteria specified in Annex XI to the draft, which prescribes the following, among other things:

Tariffs shall accurately reflect electricity and cost savings in networks achieved from demand side and demand response measures and distributed generation, including savings from lowering the cost of delivery or of network investment and a more optimal operations of the network,

Network regulation and tariffs shall allow network operators to offer ancillary services for demand response measures, demand management and distributed generation on organized electricity markets, in particular:

­ the shifting of the load from peak to off-peak times by final customers taking into account the availability of renewable energy, energy from cogeneration and distributed generation,

­ energy savings from demand response of distributed consumer by integrators, ­ demand reduction from energy efficiency measures undertaken by energy

service companies and ESCOs, ­ the connection and dispatch of energy sources at lower voltage levels, ­ the connection of generation sources from closer location to the consumption,

and ­ the storage of energy.

Appropriate commercial conditions including dynamic pricing shall be available on the basis of signals resulting from the analysis of final customer demand, including:

­ time-of-use tariffs, ­ critical peak pricing, ­ real time pricing, and ­ rebates for taking appropriate action in terms of energy consumption at peak

time.

Energy efficiency directive provisions may help remove key barriers impeding the dissemination of distributed energy resources managed by HAN, thus enforcing changes in the country law, which is subject to analysis further in the Report. Yet, it must be reiterated that the final wording of the directive is still uncertain at the time of Report preparation.

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2.4. The role of power system operators in HAN deployment

Power grid operators, and most of all distribution system operators (DSOs) – operating at the

interface of the power system and end user in the household – will be responsible for

developing Smart Grid infrastructure, including smart meter installation. However, the role of

power system operators in HAN development is not defined clearly in Community

regulations. One can only presume that this role (as indicated above) should consist in

‘energy management service provision’, which prima facie can hardly be extended to HAN

infrastructure provision, unless the delivery of appliances is inherently connected with the

implementation of grid operators’ tasks prescribed in the regulations.

The tasks of transmission system operator (TSO) are set forth in Article 12 of Directive

2009/72/EC. The following tasks can be regarded as those relevant for HAN development:

contributing to security of supply through adequate transmission capacity and system

reliability, and ensuring the availability of all necessary ancillary services, including those

provided by demand response. The tasks of distribution system operators are regulated in

Article 25 of Directive 2009/72/EC, pursuant to which DSOs are required, inter alia, to

ensure the long-term ability of the system to meet reasonable demands for the distribution of

electricity. HAN development potential within the power grid should be taken into account at

the stage of distribution network development planning. Pursuant to Article 25, paragraph 7

of Directive 2009/72/EC, when planning the development of the distribution network, energy

efficiency/demand-side management measures or distributed generation that might supplant

the need to upgrade or replace electricity capacity shall be considered by the distribution

system operator.

Therefore, when specifying the range within which DSOs or TSO may operate as HAN

service providers, one must first and foremost highlight the functions associated with

ensuring the security of supply. It should be assumed that, in principle, within the framework

of operator’s activity, DSOs or TSO may provide services and appliances in connection with

demand response management agreement for system regulatory purposes, or with the

purpose to reduce energy consumption at peak times. Such actions, however, may only

apply to the operation in scope of ensuring security of supply. Under Articles 14 and 26 of

Directive 2009/72/EC, there is unbundling requirement whereby DSO and TSO distribution

and transmission operation must be independent from electricity generation or supply

operation. Provision of HAN-related services by a DSO or TSO for purely commercial

reasons might be regarded as a violation of that principle. This might potentially be the case

if energy savings declared by the users were to be re-sold on commercial basis to other

users. Even though the ‘negawatt’ sale literally is not the same as the sale of electricity, it

does appear that commercial involvement of the operator in that respect might be in conflict

with the objectives of Directive 2009/72/EC. Indeed, it is true that the potential sale of

savings obtained by one user to another user is tantamount to the mediation on resale of

ordered energy. Concluding, direct provision of HAN services by the operators may be

hindered by the barrier of impossible combination of demand response management

services and commercial type services, e.g. those related to energy trade balancing.

Yet another threat is posed by the potential involvement of operators on the market of

ancillary services such as HAN provision. If DSOs or companies associated with DSOs

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themselves were to operate in that area, there may be potential disruption to competition.

The regulatory setting will need to ensure that these risks are properly addressed.20

For those reasons, the target model for TSO and DSO involvement in HAN infrastructure

development is the model indicated by EURELECTRIC, where DSO takes care of the

installation of smart meter, but as far as HAN utilization is concerned, DSO is only the

recipient of ancillary services offered by other entities (ESCOs, suppliers.) Such companies

will supply HAN to users and, at the same time, they will integrate users into groups so as to

enable provision of ancillary services for operators21.

In the context of HAN, increasing significance of DSOs in scope of power system

management should be emphasized. Such necessity is indicated, inter alia, in the report of

the Smart Grid Task Force appointed by the European Commission22. In the document, the

Task Force underlined that fact that DSOs will have to face up to the most serious tasks in

the context of Smart Grid deployment, resulting from the impact the demand response active

management, energy storage and dissemination of electric cars will have on local

infrastructure. Consequently, a DSO should be an active participant of such projects,

following the changes of static distribution network into an active one. In the future, collection

and management of information about distributed generation should be among key tasks of

DSOs.

2.5. Smart meters for other utilities

The issue of smart meters was also addressed in Directive 2009/73/EC (Gas Directive.)23

Pursuant to Article 3, paragraph 8 of the directive, Member States or, where a Member State

has so provided, the regulatory authority, shall strongly recommend that natural gas

undertakings optimize the use of gas, for example by providing energy management

services, developing innovative pricing formulas or introducing intelligent metering systems

or smart grids, where appropriate. Analogically to the case of smart meters on electricity

market, in Annex I to Directive 2009/73/EC it is stipulated that the implementation of

intelligent metering systems may be subject to an economic assessment of all the long-term

costs and benefits to the market and the individual consumer, and Member States shall

prepare a timetable for the implementation of intelligent metering systems and ensure their

interoperability. Unlike in the case electricity market, however, neither the minimum limit of

consumers equipped with the meters nor deployment deadline have been set.

20

Communication from the Commission of 12.4.2011, Smart Grids: from innovation to deployment, COM (2011) 202 final. 21

The Role of DSOs on Smart Grids and Energy Efficiency, EURELECTRIC position paper, January 2012. 22

The Task Force Smart Grids Expert Group 3 report on Roles and Responsibilities of Actors involved in Smart Grids Deployment EG3 Deliverable, dated 4 April, 2011 23

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 (Official

Journal of the European Union, 13.07.2009. L. 211. p. 94), hereinafter: Directive 2009/73/EC

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Heat and water markets have not been harmonized at the European level, which means that

there are no Community regulations concerning smart metering in those areas. The only

references to other utilities can be found in the provisions of Directive 2006/32/EC, although

the provisions of that directive cannot be regarded as a solid basis for the integration of

metering and billing systems of various utilities within HAN24.

2.6. Privacy and security of data within HAN

2.6.1. Legal basis for the right to the protection of privacy in the European

Union

Recognition of the right to privacy as a fundamental human right is rooted in Article 12 of the

Universal Declaration of Human Rights, as well as in Article 8 of the European Convention

on Human Rights. The EU Charter of Fundamental Rights clearly underlines legal protection

of information autonomy of an individual, stating in Article 8 that everyone has the right to the

protection of personal data concerning him or her. Such data must be processed fairly for

specified purposes on the basis of the consent of the person concerned or some other

legitimate basis laid down by law. Everyone has the right of access to data which has been

collected concerning him or her, and the right to have it rectified. The principle of personal

data protection for every individual is also clearly supported in Article 16 of TFEU. The main

act of Community secondary legislation regulating the detailed rules for data processing is

Directive 95/46/EC25.

Personal data processing in the context of HAN can also be regulated by Directive

2002/58/EC26. This Directive is applicable to publicly available services which, by and large,

consist in the transmission of signals via electronic communication networks. Such a stance

is also acknowledged by the European Commission in its Recommendation27, emphasizing

that this pertains, in particular, to the case of the utilization of public electronic

communication services for the purpose of contact with customers. In specific HAN service

provision models, Directive 2002/58/EC may turn out not be applicable to HAN service

provider, if the provider does not provide the customer with publicly available electronic

24

M. Swora, Smart grids…, pp. 12 – 13. 25

Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the

protection of individuals with regard to the processing of personal data and on the free movement of

such data (Official Journal of the European Union L 281 , 23/11/1995 P. 0031), hereinafter: Directive

95/46/EC.

26 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning

the processing of personal data and the protection of privacy in the electronic communications

sector (Directive on privacy and electronic communications) (Official Journal of the European Union

L 201 , 31/07/2002 P. 0037), hereinafter: Directive 2002/58/EC. 27

Commission Recommendation of 9 March 2012 on preparations for the roll-out of smart metering

systems, 9.3.2012, (2012/148/EU), point 7 of the Preamble.

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communication services28. This point of view is endorsed by the European data protection

authority.29

With reference to messages transmitted by electronic communication channels within HAN

and between HAN service provider and the user by dedicated channels, Directive

2006/24/EC, specifying the principles for telecommunications data retention, shall not apply

to the provision of HAN services. In Article 5 of the Directive, categories of data to be

retained are listed, concerning fixed network telephony and mobile telephony, Internet

access, Internet e-mail and Internet telephony30. It must be concluded that HAN internal

channels do not exhibit the features of Internet access or any other of the types of

connections referred to above. Provisions of the Directive will apply to HAN service provider

with regard to communication channel between home gateway and service provider’s server

in the case when Internet access is provided to the user together with HAN. In the case when

Internet access is provided by a third party, that party will be held accountable for data

retention. It must be emphasized that, pursuant to the Directive, it is not permitted to retain

the data revealing the content of the message. Consequently, there is no risk of retention of

measurement data transmitted via the Internet between the user and HAN service provider.

2.6.2. Personal data and legal premises for its processing within HAN

In accordance with the definition set forth in Article 2 a) of Directive 95/46/EC, the directive

will be applicable to all and any information relating to an identified or identifiable natural

person (…), with the exception of information which does allow for identification of a natural

person, but would involve a disproportionate effort in that regard. The directive is applicable

regardless of technical aspects of personal data processing. The only important aspect is the

possibility of making a link between measurement data collected in course of operation of

smart systems and a specific natural person. With regard to measurement data processed

within HAN services, HAN service provider, by entering into agreement with the user, will in

principle possess information allowing for identification of the entity to whom measurement

data is assigned. In other words, in the case when the agreement is concluded with a natural

person, Directive 95/46/EC and relevant national acts of legislation implementing that

Directive will apply. Confirmation of that view can be found in the opinion 12/201131 of the

Working Party established by Article 2932.

At this point, two major differences between the processing of data originating from smart

meters and the processing of personal data by HAN provider must be indicated. First, in view

28

A more detailed discussion concerning the difference between public and non-public electronic communication services is

presented in Section 2 d) of this Report, dedicated to electronic communication services. 29

Opinion of the European Data Protection Supervisor on the Commission Recommendation on preparations for the roll-out of smart metering Systems dated June 8, 2012, point 4.7, available at: www.edps.europa.eu 30

Directive 2006/24/EC of the European Parliament and of the Council of 15 March 2006 on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks (Official Journal of the European Union L 105 , 15/03/2006 P. 0054), hereinafter: Directive 2006/24/EC. 31

Opinion 12/2011 of April 4, 2011, of the Working Group appointed pursuant to Article 29 concerning smart metering (WP 183, see: ec.europa.eu/justice/policies/privacy) 32

Working Party on the Protection of Individuals with regard to the Processing of Personal Data established by Article 29 of Directive 95/46/EC, is an independent advisory body composed of the representatives or supervisory bodies in scope of personal data protection and community bodies. Opinions issued by the Working Party are not binding, but they are usually adopted by national supervisory authorities as their own.

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of fully voluntary use of the services of HAN provider and the possibility of HAN installation

by the user, the risk of privacy violation is mitigated. The other key difference consists in

much greater level of detail in the data, which entails the potential risk of substantial violation

of privacy of the person whose measurement data is used in illegitimate way.

In the context of services related to HAN, the issue of potential violation of user’s privacy by

mere collection of data is not as significant as in the case of collection of measurement data

from the meter operating within AMI. When a person whose data is involved enters into an

agreement including processing of measurement data, or gives his or her informed and

voluntary consent to such processing, there is basically no reason to decide that the privacy

of that person has been breached. Consent and processing for the purpose of contract

execution are explicitly named in Article 7 of Directive 95/46/EC as the evidence legalizing

personal data processing. In course of such processing, HAN service provider will have to

conform with the other obligations associated with data processing, presented in more detail

in the section of this Report dedicated to Polish legislation.

In view of the model adopted in Economic Report and Technological Report, based on the

concept of voluntary use of HAN, the only thing that needs to be done is to exclude, on legal

grounds, the possibility of HAN deployment according to the model assuming mandatory use

of HAN. In light of Article 8 of the European Convention on Human Rights, the principle of

proportionality and purposefulness of restrictions would be infringed by an absolute

obligation to use the devices that enable energy distributor to obtain information not only

about global consumption of energy supplied by the distributor, but also about a detailed

profile of energy usage by individual appliances.

2.6.3. Data processing security

In the context of HAN services, a key issue consists in ensuring security of measurement data processed within HAN, as well as the data transmitted between HAN service provider and data recipient. As mentioned above, measurement data collected within HAN will reveal much more information about user behavior. If an unauthorized person was to become in possession of such data, a detailed pattern of user’s behavior would be revealed. The resulting risks not only in scope of user’s privacy, but even user’s security, seem quite obvious.

In the Community legislation there are no specific regulations concerning the security of personal data processing, measurement data included. In Article 17 of Directive 95/46/EC, a general requirement to apply appropriate technical and organizational measures to protect personal data is laid down. More stringent measures are set forth in Directive 2002/58/EC: in Article 4, it is specified that technical and organizational measures should have regard to the state of the art and the cost of their implementation, these measures shall ensure a level of security appropriate to the risk presented. However, there is lack of uniform Community regulations specifying in a detailed manner what types of technologies and organizational measures must be applied in order to ensure data security. To a limited extent, minimum required measures are set forth in Article 4, paragraph 1a of Directive 2002/58/EC, according to which the provider of a publicly available electronic communications service shall:

Ensure that personal data can be accessed only by authorized personnel for legally authorized purposes,

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Protect personal data stored or transmitted against accidental or unlawful destruction, accidental loss or alteration, and unauthorized or unlawful storage, processing, access or disclosure, and,

Ensure the implementation of a security policy with respect to the processing of personal data33.

2.7. HAN and the provisions concerning electronic

communications

Directive 2002/21/EC34 is the main act of law establishing regulatory framework for

Community telecommunications law. In the context of the Smart Grid, the terms of ‘electronic

communications services’ and ‘electronic communications networks’, which determine the

scope of regulation by telecommunications directives, will be of key importance.

According to the definition of Directive 2002/21/EC, electronic communications service

means a service provided for remuneration, which consists wholly or mainly in the

conveyance of signals on electronic communications networks, including telecommunications

services and transmission services in networks used for broadcasting. Electronic

communications service does not include information society services (provided at a

distance, by electronic means, and at individual request of the recipient of services) which do

not consist wholly or mainly in the conveyance of signals on electronic communications

networks. According to the Directive, the term of electronic communications networks means

transmission systems and, where applicable, switching or routing equipment or other

resources, including inactive elements of the network, which permit the conveyance of

signals by wire, by radio, by optical or by other electromagnetic means, including (…)

electricity cable systems, to the extent that they are used for the purpose of transmitting

signals (…) irrespective of the type of information conveyed. Finally, the third important factor

for the application of regulatory framework adopted by the EU is the issue whether electronic

communications service has public character. Non-public electronic communications

networks for the most part stay beyond the scope of Community regulations. Having said

that, one must note the absence of a consistent definition of a service provided ‘for the

public’. To date, the Commission has indicated that this notion should be understood in the

common sense of the word, i.e. when the service is potentially provided to all the members of

the public on the same basis35. Yet, it is highlighted in the literature that it is not possible to

draw a clear line between public and non-public electronic communications services, raising

33

In the Polish legal system, such requirement has been imposed upon every administrator of

personal data. 34

Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common

regulatory framework for electronic communications networks and services (“Framework Directive”)

(Official Journal of the European Union L 108, 07/03/2002 P. 0033), hereinafter: Directive 2002/21/EC. 35

Communication by the Commission to the European Parliament and the Council on the status and

implementation of Directive 90/388/EEC on competition in the markets for telecommunications service

(95/C 275/02.)

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a number of practical concerns36. In Polish literature it is pointed out that the ‘non-public’

attribute can be attached to those telecommunications services which are closely linked to

another basic service37.

At the onset of HAN status analysis, HAN must be divided into three areas. Two areas are

related to HAN communication with the outside world, i.e. communication channel between

AMI and HAN via AMI meter, controlled by distribution system operator (hereinafter: ‘AMI

communication’), and communication channel between home gateway and the server of

HAN service provider (hereinafter: ‘external communication’.) The third one is HAN internal

area, i.e. communication between HAN devices and home gateway (hereinafter: ‘internal

communication’.)

As far as AMI communication is concerned, is seems that it could be classified as a non-

public electronic communications network. AMI network provides exclusively two-way

communication between the operator and operator’s customers; it is supposed to enable,

among other things, transmission of information about the level of declared power reduction

from the customer to the operator. Moreover, it is also planned that network operator will be

able to transmit strictly specified categories of messages for the user upon request of a third

party, such as independent measurement operator or an entity dealing with demand

management system. It should be recognized that both the limited range of entities and the

nature of content transmitted via this communication channel confirm that communication

network within AMI, at the least, should be regarded as non-public. However, a question

must be asked whether such an exchange can be regarded as electronic communications

service in the first place. Pursuant to energy law, transmission of public information is a task

entrusted to DSOs. For those reasons, the interpretation arguing that transmission of

measurement information does not constitute an example of electronic communications

service but, rather, it reflects operator’s duties, must be considered as correct one. Assuming

such teleological interpretation, transmission of measurement information is evaluated solely

on the basis of energy law and it does not fall within the scope of regulations set forth in

telecommunication directives38. Electronic communications services would be provided for

the public if AMI channel – i.e., the power grid – was utilized (in PLC technology, for

example) for the transmission of any messages between power network users for the

purposes not related to the operation of distribution grid.

With regard to external communication, we are dealing with electronic communications

network. This network may be public or non-public in character. In the case of a dedicated

communication channel offered by HAN service provider, used solely for the purpose of

36

M. Gadzheva, Legal Issues in Wireless Building Automation: an EU Perspective, International Journal of Law and Information Technology 2008, 2008, 16(2), pp. 162-163. 37

Quote: A service is non-public in nature when a narrow, firmly established and applied subjective criterion is adopted to define the group of potential users. It may be the case especially in the circumstances when the use of the service is conditioned by the presence of another permanent legal relation with the service provider, if such additional relation cannot be freely initiated by each entity interested in getting access to telecommunications services. S. Piątek, Prawo Telekomunikacyjne – Komentarz, [Telecommunications Law – A Commentary], Second Edition, Warszawa 2005, p. 94. 38

On the other hand, the view adopted by the Commission goes against that stance: according to that

view, data transmission via the Smart Grid is governed by the provisions of the Directive 2002/58/EC,

which in principle apply to the suppliers of services provided for the public. If a DSO is considered to

be a provider of telecommunications services, a number of regulatory obligations will arise on the side

of DSO, e.g. in scope of third party access or data retention.

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communication between service provider and the user, network must be considered as non-

public in nature. If, at the same time, it enabled mutual communication between the

customers of HAN provider, it would have to be regarded as a public network. Yet, as a

matter of principle, it should be assumed that the channel of communication between home

gateway and HAN service provider will be offered by a third party – an Internet connection

provider. Under the circumstances, both HAN service provider and service user will be the

end users of electronic communications network made available by the provider of a

communications service.

In the context of internal communication (within home gateway range), it seems justified to

assume that HAN service provider is not going to provide electronic communications

network. On the basis of the three models described in the Technological Report39, it must be

recognized that whenever the topology of HAN controlled by the user is adopted, HAN

service provider will only act as the provider of telecommunications equipment and will not

provide access to electronic communications network. In turn, in the case when HAN

topology specifies that the network is controlled by the operator, or the topology is based on

neighborhood network controlled by the operator, such network will meet the criteria typical

of a non-public electronic communications network, but HAN service provider will not make it

available to the user. Under the circumstances, HAN service provider will send messages

between the appliances managed by HAN service provider, but he will not render

telecommunications service for the user – HAN service provider is both the source and the

recipient of messages. It is only in the case when HAN service provider makes it possible for

the user to send messages to other users (e.g., within the neighborhood network) that HAN

service provider can be considered as a provider of a non-public electronic communications

network.

In view of the above, it must be concluded that, as a rule, HAN service provider will not offer

access to a public electronic communications network. Consequently, HAN service provider

will not be subject to a number of regulations applicable to telecommunications operators, in

particular, to third party access requirement40. Should additional communication services be

provided, HAN service provider may be subject to such requirements but, due to the fact that

such activities are not associated with HAN basic functions, the obligations of providers of

electronic communications services for the public (for example, communication among all

HAN service users) will not be discussed further in this Report. Potential consequences of

provision of a non-public electronic communications network by HAN service provider are

analyzed in the section dedicated to country regulations.

2.8. HAN and information society services

Irrespective of the classification of HAN services as electronic communications services,

some HAN services can have the character of information society services in the meaning of

39

ZIGBEE network models, Section 1, Technological Report. 40

Set forth in Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive) (Official Journal of the European Union L 108, 24/04/2002 P. 007.)

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Directive 2000/31/EC on electronic commerce41. According to the assumption underlying the

models of HAN service provision presented in the Technological Report, a significant portion

of those services can be provided at a distance, by electronic communication means.

Directive 2000/31/EC sets forth a number of rules in scope of the provision of information

society services, including the conclusion of contracts by electronic means, information

requirements, prohibition to send unsolicited commercial communication, or the principles of

liability of information society service providers, but most importantly, in Article 3, it sets forth

the principle of a country of origin. Pursuant to that principle, Member States may not, for

reasons falling within the coordinated field, restrict the freedom to provide information society

services from another Member State. Potential derogations from that principle may be

introduced on the grounds of public policy, the protection of public health, public security, or

the protection of consumer, and each time European Commission must be notified in order to

examine the compatibility of the notified measures with the regulations specified in Directive

2002/31/EC and compliance with the criteria of necessity and proportionality. In the context

of HAN, it must be pointed out that the country of origin principle will apply to the services

actually provided by electronic means. Activities such as delivery of equipment or services

rendered at user’s premises will not be provided by electronic means.

Taking the above into consideration, in the context of the model underlying the provision of

HAN services, introduction of country regulations governing the provision of HAN-related

services may turn out to be unjustified. The only exception in that respect will consist in the

issues connected with public order or security and consumer protection. Any general

restrictions in scope of the provision of energy management services will, as a rule, apply

only to domestic entities, resulting in distorted competition to the detriment of domestic

suppliers of HAN. Notably, this reservation does not apply to the services associated with

demand management within the power grid. Entities operating in that area will almost always

cooperate in the field of demand management with a regulated national entity (e.g., DSO,

TSO) and, consequently, they will be bound by demand management principles – either

directly or under terms of agreement with a DSO or TSO.

2.9. Interoperability and preventing disruptions in communication

According the provisions of Article 17 of the Framework Directive 2002/21/EC, Member

States shall encourage the use of non-mandatory standards or specifications adopted and

published by the European Commission or drawn up upon request from the Commission by

the European standards organizations42, to the extent necessary to ensure interoperability of

services and to improve freedom of choice for users. The implementation of such standards

and/or specifications can be made compulsory by the European Commission under a special

procedure. This applies to the situation when the standards have not been adequately

41

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal

aspects of information society services, in particular electronic commerce, in the Internal Market

('Directive on electronic commerce') (Official Journal of the European Union L 178 , 17/07/2000 P.

0001), hereinafter: Directive 2000/31/EC. 42

European Committee for Standardisation - CEN, European Committee for Electrotechnical Standardisation – CENELEC, and European Telecommunications Standards Institute – ETSI.

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implemented so that interoperability of services in one or more Member States cannot be

ensured. The Commission authorized European Committee for Standardisation (CEN),

European Committee for Electrotechnical Standardisation (CENELEC), and European

Telecommunications Standards Institute (ETSI) to develop common European standards

concerning smart meters and Smart Grid43. The standards have not been completed at the

time the Report was drafted. The issue of standardization (normalization) involves technical

standards and as such it is not discussed in the Legal Report. Still, it is important to

emphasize the importance of standardization (normalization) processes for HAN

development, its market application and potential future regulations in the context of the

work of European organizations referred to above and standardization dialog between the

EU and the USA, where the standardization of the issues connected with the Smart Grid is

subject to advanced work of the National Institute of Standards and Technology (NIST.)

With regard to the use of radio communications for connecting HAN components, European

Union policy in scope of a radio spectrum was established in the decision of the Parliament

and of the Council of March 14, 243/2012/EU44. One of the elements of the plan subject to

the decision is the consideration, undertaken by the Commission in cooperation with the

Member States, concerning making the spectrum available for wireless technologies with the

capacity to increase energy conservation and improve energy efficiency of other distribution

systems, such as water supply network, as well as Smart Grids and smart metering systems.

Commission report on that issue is to be presented by April 10, 2014. Detailed rules for the

access to and utilization of a radio spectrum are set out in the provisions of Directive

1999/5/EC of the European Parliament and of the Council of 9 March 1999 on radio

equipment and telecommunications terminal equipment and the mutual recognition of their

conformity45, Directive 2002/19/EC of the European Parliament and of the Council of 7 March

2002 on access to, and interconnection of, electronic communications networks and

associated facilities46 (Access Directive), Directive 2002/20/EC of the European Parliament

and of the Council of 7 March 2002 on the authorisation of electronic communications

networks and services (Authorisation Directive)47, Directive 2002/21/EC (Framework

Directive), and the Decision 676/2002/EC of the European Parliament and of the Council of 7

March 2002 on a regulatory framework for radio spectrum policy in the European Community

(Radio Spectrum Decision.)48

In view of the fact that, as pointed out in the Technological Report, device manufacturers

typically rely on the frequency of 2.4 GHz (Zigbee, 802.11/b/g) and 868.42 MHz (Z-Wave in

Europe), the scope of legal analysis can be limited to the statement that the frequency of 2.4

GHz has been designated by the decision of the European Radiocommunications

43

Standardization Mandate M/441, Standardization Mandate M/490. 44

Decision 243/2012/EU of the European Parliament and of the Council of 14 March 2012 establishing a multi-annual radio spectrum policy programme (Official Journal of the European Union L 081, 21/03/2012 P. 0007) 45

Official Journal of the European Union L 91, 07/04/1999 P. 0010 46

Official Journal of the European Union L 108, 24/04/2002 P. 0007 47

Official Journal of the European Union L 108, 24/04/2002 P. 0021 48

Official Journal of the European Union L 108, 24/04/2002 P. 0001

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Committee49. Frequency of 868.42 MHz has been reserved for short-range devices by the

decision of the Commission50.

Thus, communication frequency bands indicated in the Technological Report as those used

by HAN infrastructure providers are complementary with Community regulations. It can be

concluded from the Decision of the Commission of 14 March 2012 that, if Commission

research findings reveal the need for such a solution, it is possible within a timeframe of

several years to designate a specified radio band for the purpose of communication within

the Smart Grid.

Apart from the rules governing access to frequency band, Community law regulations set

forth harmonized rules for radio equipment, electromagnetic terminal equipment, and

electromagnetic compatibility51. They require from Member States that radio equipment or

telecommunications terminal equipment be brought out on the market only when they

conform with the requirements set out in those provisions. The objective is to ensure user

protection, electromagnetic compatibility and the use of radio spectrum without harmful

disturbances.

2.10. HAN in European legislation – a summary

European law does not restrict the possibility of HAN development, indeed, it

authorizes the Member States to create incentive mechanisms to encourage HAN

deployment,

European law requires that the Member States implement smart metering systems,

which can be considered as a condition for the development of HAN with energy

efficiency improvement functionalities,

Utilization of distributed energy resources is a policy officially supported by the

Community, in the currently processed draft energy efficiency directive some barriers

hampering the development of distributed energy sources can be removed,

HAN services should not be categorized as telecommunications services, with the

exception of the case when HAN provider supplies their own independent

communication channel that can also be used for third party communication,

In the context of European regulations, the obligation to secure user data rests first

and foremost on HAN service provider. It is to be expected that in the future the rules

49

ERC Decision (01)07 of 12 March 2001 on harmonised frequencies, technical characteristics and exemption from individual licensing of Short Range Devices used for Local Radio Area Networks (RLANs) operating in the frequency band 2400–2483.5 MHz. 50 Commission Decision of 9 November 2006 on harmonisation of the radio spectrum for use by

short-range devices (Official Journal of the European Union L 312 11/11/2006 P. 0066.) 51

Those issues are regulated by Directive 1999/5/EC on radio equipment and telecommunications

terminal equipment and the mutual recognition of their conformity (Official Journal of the European

Union L 91, 07/04/1999 P. 0010), and by Directive 2004/108/EC on the approximation of the laws of

the Member States relating to electromagnetic compatibility and repealing Directive 89/336/EEC

(Official Journal of the European Union L 390, 31/12/2004 P. 0024.)

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of data processing will be specified at least within the framework of Community ‘soft

law’.

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3. HAN in country legislation

3.1. HAN and national legal provisions – general comments

At present, delivery of HAN infrastructure as well as HAN maintenance and servicing are not

specifically regulated. Consequently, HAN delivery and provision of energy management

services such as HAN configuration, introduction of new energy management programs, etc.,

is fully allowed under the freedom of establishment. On the other hand, absence of legal

solutions in scope of HAN cooperation within Smart Grids, and inability to fully exploit the

potential of HAN as a demand response management item, represent a barrier impeding

HAN development.

At present, HAN service provider may be subject to obligations with regard to certain aspects

of provision of HAN infrastructure components, or certain forms of HAN service provision. In

that context, legal provisions in respect of personal data processing52 or, when HAN services

are provided via the Internet, provisions of the law on services provided electronically53, shall

be applicable to HAN service provider.

Mechanisms supporting the development and promotion of HAN as an energy efficiency

instrument, as well as financial support mechanisms described at the end of this Section,

play a separate role.

3.2. Current legal status in respect of smart meter installation

Currently, in the Polish law there are no specific rules concerning smart meter deployment. Legal basis for the acquisition and processing of measurement data is derived from the obligation of electricity distribution system operator specified in Article 9c, paragraph 3, point 9a) of the Energy Law54, which sets forth the scope of obligations imposed upon electricity distribution system operator. One of those obligations is to enable the execution of electricity sales agreements concluded by the users connected to the grid by, inter alia:

Acquisition, storage, processing and provision of measurement data, in a way agreed upon by energy market participants, concerning electricity consumed by the users, to their suppliers of choice and the entities responsible for trade balancing, as well as to the transmission system operator,

Preparation, update and provision to users and their suppliers of their standard consumption profiles, and including the rules governing their application in the instruction referred to in Article 9g,

52

The Act of August 29, 1997, on the Protection of Personal Data (Consolidated text – Journal of

Laws, No. 101, item 926), hereinafter: Personal Data Protection Law. 53

The Act of 18 July, 2002, on Providing Services by Electronic Means (Journal of Laws, No 144, item

104, with further amendments), hereinafter: Law on Services Provided by Electronic Means. 54

The Act of April 10, 1997 – Energy Law (Journal of Laws of 1997, No 54, item 348, with further amendments), hereinafter: Energy Law.

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Provision of access to the data concerning scheduled and actual consumption of electricity determined on the basis of standard consumption profiles for the agreed billing periods.

Detailed terms and conditions pertaining to electricity meters are set forth in the System Regulation55, with the users divided into connection groups defined in § 13. As far as households are concerned, most of them belong to connection group V; some more ‘energy-intensive’ household users may be categorized under connection group VI.

Pursuant to the System Regulation, DSOs are required to install, at their own expense, a metering and billing set at the location prepared by the user and a metering and billing system in the case of entities included in connection groups IV-VI, supplied from the network with rated voltage not greater than 1 kV, with the exception of generators (§ 13, paragraph 4, point 2.) Furthermore, under System Regulation, measurement data must be provided to the user, the supplier, and the entity responsible for the settlement of unbalanced electricity supplied to and consumed from the system (§ 13, paragraph 4, point 5.) Also, there is a requirement of access to the readings of the metering and billing system and to the records on the basis of which the electricity supplied was billed, as well as to the findings of the inspection verifying the correctness of readings made by those systems (§ 13, paragraph 4, point 6.)

As can be reasonably inferred from the principles governing the settlement of unbalanced energy (§ 15, paragraph 2 of the System Regulation), meters for connection groups I-IV must enable remote acquisition of information concerning electricity purchased or sold, presenting a set of data specifying electricity volume – separately for each billing period. This requirement, however, does not apply with regard to group V, which can be billed according to the standard consumption profile.

This statement is further confirmed by Annex 1 to the System Regulation, point II. 2., regulating technical requirements for connecting to the grid generation equipment, distribution networks, end user appliances, interconnectors and direct lines of entities categorized under connection group III, IV, V or VI. According to the Annex, a remote metering and billing system should be installed for the users with end use load of at least 40 kW, or annual electricity consumption not lower than 200 MWh. With regard to the users who do not meet those criteria – which is true of a majority of household users – it is possible to install metering and billing systems enabling recording and memory storage of active power and taking remote readings – but only in the circumstances defined by distribution system operator in the Grid Operation and Maintenance Instruction.

In the System Regulation, in point II. 2. 5) of Annex 1, only two requirements are specified in respect of the ‘intelligence’ of the meter, in the cases defined by the electricity distribution system operator in the instruction, namely:

Metering and billing systems should enable recording and memory storage of active power measurements at the periods lasting from 15 to 60 minutes at the time specified by electricity distribution system operator, but in any case not longer than over two billing periods. Also, these systems should automatically shut down the billing period,

Metering and billing systems should enable transmission of measurement data at the frequency not greater than once every 24 hours (once a month is the recommended frequency.) Provision of data concerning the end user load and reactive energy is not required.

55

Regulation of the Minister of Economy of May 4, 2007, on detailed terms and conditions of power system operation (Journal of Laws, No 93, item 623, with further amendments), hereinafter: System Regulation.

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Binding legal provisions do not refer to the installation of smart meters enabling two-way communication. System Regulation provisions mention only the installation of meters allowing for remote reading of data in groups I-IV, and provide for the possibility of installation of such meters in group V, where most potential users of HAN service belong. Remote meter reading is not sufficient to ensure cooperation between power grid and HAN. This model continues to position the end user as a passive user, the only difference being the fact that the reading of consumption data can be done remotely. Indeed, with the current regulation staying in force and energy companies adhering to it, HAN development might actually be hampered. The fact is that the costs incurred by the installation of remote reading meters might delay the implementation of smart meters, which are indispensable for full utilization of HAN potential. A side comment should be made, though, that the provisions of the Regulation do not preclude the installation of smart meters since the Regulation specifies the minimum requirements. In view of the absence of relevant regulations in that regard, this Report is focused on the assessment of draft regulations concerning Smart Grid deployment.

3.3. Future content of legal regulations concerning Smart Grids

Future legislation concerning Smart Grids can exert significant impact on HAN development.

The need to prepare a proper regulatory environment for such networks has been

appreciated by the initiators of the new Energy Law. The rules for Smart Grid deployment

(more specifically, the status described as ‘Smart Grid Ready’) have been contained in the

draft Energy Law presented on 20 December, 2011, by the minister competent for the

economy within the framework of the so-called ‘energy package’56. Apart from the new draft

Energy Law, the package includes the draft Gas Law and the draft RES Law.

Following Article 53 of the draft Energy Law, distribution system operators will be required,

by 31 December, 2020, to install smart meters in the system with every user for whom they

provide electricity distribution service. The cost of meter installation will be borne by power

system operator.

The term of a smart meter is defined by the authors of draft legislation as a set of devices

used for electricity measurements and transmission of measurement information by means

of an information and communication system. Looking at the scope of the term of

measurement information, it is determined that two-way communication must be enabled by

the meter, because measurement information includes not only the measurement data as

such, i.e. the actual information about consumed or generated electricity and quality

parameters of electricity supplied, but also market signals and control commands. In other

words, the meter installed in compliance with the draft law must ensure the provision of

information associated with demand management mechanism in which the user participates,

and the information about electricity prices and fee rates in force at a given time (market

signals), as well as direct commands targeted at the smart meter and affecting electricity

consumption (control commands.) Concluding, current data obtained via the meter, as

designed in the draft law, should support energy management system functions.

56

Draft Energy Law, draft Gas Law and draft RES Law available from Public Information Bulletin (BIP)

of the Ministry of Economy – status as of May 28, 2012.

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When discussing the details of the future shape of the Smart Grid and technical aspects of

smart meters, one can also draw on the outcome of efforts undertaken by the President of

Energy Regulatory Office (ERO/URE), with the caveat that those outcomes are not

equivalent to binding legal acts. In the position of the President of ERO57, there is an outline

of regulator’s expectations towards the model, Smart Grid and smart metering, side by side

with the requirements of ERO President towards its individual components. The President of

ERO has also presented the position on measurement operator58.

The discussion presented in the subsequent sections of the Report is based on the

provisions of the draft Energy Law and the above-mentioned positions of the President of

ERO (which do not form part of a universally binding law.)

3.3.1. HAN deployment model – ownership of equipment and implications

from the standpoint of division of responsibility

The adopted model of HAN deployment will be of key importance for the ownership of

equipment and division of responsibility between distribution system operator, HAN

technology provider, and the user. In the work done to date, two possible models are

distinguished59. The model in which AMI meter performs home gateway function as well, and

the model adopted in the Technological Report, where home gateway and AMI meter are two

separate devices. In the case when the meter also performs home gateway function, DSO is

at the same time HAN service provider, referred to in this Report. HAN devices are

registered directly ‘at the meter’ and they are controlled via the meter. In turn, when the

devices are separated and DSO provides only open and interoperable communication

channel between AMI meter and any home gateway, DSO may or may not act as HAN

service provider - that function can be performed by a third party as well. Considering the

model adopted in the Technological Report, the decision as to the types of devices – apart

from AMI meter – to be provided by distribution system operator will play an important role.

This decision will exert impact on potential benefits. If HAN technology is included in the

deployment of AMI meters, on the one hand, HAN may become more prevalent and,

consequently, the effects of AMI meter deployment may be boosted, but on the other hand it

may have adverse influence on the development of competition in scope of provision of HAN

57

Position of the President of Energy Regulatory Office, published on May 31, 2011, on necessary

requirements concerning smart metering and billing systems implemented by electricity DSOs, taking

into account the objective function and proposed support mechanisms in the proposed market model

[Stanowisko Prezesa URE w sprawie niezbędnych wymagań wobec wdrażanych przez OSD E

inteligentnych systemów pomiarowo-rozliczeniowych z uwzględnieniem funkcji celu oraz

proponowanych mechanizmów wsparcia przy postulowanym modelu rynku], available from

www.ure.gov.pl, hereinafter: AMI Position. 58

Concept note, published on June 4, 2011, on metering system in Poland, with particular emphasis

on the requirements towards Measurement Information Operator [Koncepcja dotycząca modelu rynku

opomiarowania w Polsce, ze szczególnym uwzględnieniem wymagań wobec Operatora Informacji

Pomiarowej], available from www.ure.gov.pl 59

Advanced Metering Infrastructure Home Area Network (HAN) Functionality Guideline, draft document prepared by Australian Department of Primary Industries, version 0.5 of November 20, 2008, available from http://aemo.com.au/

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services. In the context of AMI system deployment planned in Poland, it seems appropriate

to recognize that home gateway and remaining HAN components are a separate structure,

independent of the meter and system of communication between the meter and AMI system,

which belong to distribution networks. As can be concluded from the position of the President

of ERO concerning AMI in scope of smart meter functionalities, the meters alone will not

perform home gateway function. Specification laid out in the position concerning AMI does

not include the possibility of signals being transmitted between HAN devices. Thus, home

gateway will probably be a separate device communicating with AMI meter by means of

communication module, as described in the Technological Report. Judging from the position

published by the Polish Power Transmission and Distribution Association (PTPiREE),

communication with home gateway will be carried out via a converter installed in a standard

USB A. Port (point 6.1. of the specification), and the port should not be available to the user

without damaging the assembly seal60. Such a solution is in line with the model

recommended in the Technological Report.

Under the model, AMI meter installation takes place irrespective of the installation of HAN

infrastructure components. In theory, the DSO may supply a relevant communication

module, home gateway and other HAN infrastructure devices together with the meter, but it

is not a requirement in the understanding of current draft regulations. Based on the draft

Energy Law and AMI Position, it can be concluded that DSO will be required to supply AMI

meter only. Consequently, potential provision of home gateway components together with

the meter by a DSO will not fall within the realm of distribution system operator’s tasks.

It should be noted that in other countries a model has been adopted where a DSO is

responsible for home gateway provision (also pre-installed in the meter.) For instance, in

Australia it is assumed that a DSO will be required to deliver HAN home gateway together

with AMI meter61; by the same token, Californian regulator has accepted deployment plans of

three energy companies (PG&E, SDG&E and SCE)62, with AMI deployment including the

provision of HAN home gateway.

3.3.2. Ownership of AMI meter and HAN devices

To begin with, it should be noted that the owner of the meter is not specified in the Energy

Law. Nevertheless, considering the fact that, pursuant to the System Regulation, in

connection groups IV-VI the cost of meter funding is borne by distribution system operator, it

is assumed that in those tariff groups the meter belongs to the DSO. Consequently, in the

circumstances when the meter and home gateway are separated, HAN should be treated as

60

Position of PTPiREE Team concerning AMI – Description of functional requirements – One-phase and three-phase meters [Stanowisko Zespołu PTPiREE ds. AMI - Opis wymagań funkcjonalnych - Liczniki 1-fazowe i 3-fazowe], available from www.piio.pl 61

Advanced Metering Infrastructure Home Area Network (HAN) Functionality Guideline, draft

document prepared by Australian Department of Primary Industries, version 0.5 of November 20,

2008, available from: http://aemo.com.au/ 62

D.K. Mulligan, L. Wang, A. J. Burstein Final Project Report, Privacy in the Smart Grids, An Information Flow Analysis, report available from: http://uc-ciee.org/downloads/Privacy_in_Smart_Grid_Final_Report.pdf

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user’s own network, with the dividing line drawn at the metering system. Having said that,

HAN components need not be user’s property, in the meaning of property rights. They can

be rented or leased by the user, or a user may have them in his or her possession under

other legal forms, with HAN components owned by HAN service provider or a third party.

Regulating the ownership model for HAN devices does not appear to be necessary, judging

from the experience of telecommunications market to date, indicating that there is no need to

regulate ownership status of household telecommunications devices. As an exception,

regulations might have to be put in place if the model of full funding of displays or home

gateways within the framework of DSO regulatory tasks was to be adopted. Then, HAN

devices supplied by a DSO should, in principle, be the property of that DSO63.

3.3.3. Division of responsibility for proper operation of HAN

Responsibility for the operation of individual HAN devices will rest on the administrator, and

for the operation of the meter – on the DSO. The primary dividing line between DSO

appliances and user’s appliances will be set at AMI meter. DSO will be in charge of proper

functioning of AMI meter and for the communications coming from the meter. The remaining

HAN components, starting from communication module through the terminal gateway, will be

administered by HAN operator, i.e. the user or HAN service provider. In the context of DSO

responsibility, according to the current draft status in Poland, three key items can be

indicated. Firstly, DSO will be responsible for logical security of communication channel

between the meter and USB port. Secondly, DSO will be responsible for secure transmission

of information enabling authentication and authorization of communication module selected

by the user. Thirdly, DSO will be responsible for proper assembly of such communication

module in USB port in the meter.

Scope of DSO responsibility might be extended, if HAN architecture was modified in such a

way that the home gateway would be included in AMI meter or the gateway would be

provided by the DSO within the framework of operator’s duties.

3.3.4. Interoperability of AMI meter and HAN

As was already mentioned, a key issue from the standpoint of HAN technology development is the interoperability between the meter and the home gateway. Interoperability regulation must obviously refer to the meter. The requirement of interoperability of the meters has not been explicitly included in the draft Energy Law, but according to Article 53 of the draft law, minister competent for the economy shall determine, by regulation, the requirements for the metering system, including two-way communication. Consequently, it must be recognized that even though the draft does not obligate the Minister of Economy to ensure

63

The user would become the owner of devices on the basis of terms of connection agreement and

rent or lease relation.

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interoperability of equipment, it does allow the Minister of Economy to introduce effective mechanisms which guarantee the possibility of cooperation between AMI meter and HAN relying on any technology.

The President of ERO has also referred to that issue in his Position. In point 4.2.3. of AMI Position, the President of ERO indicated, inter alia, the following minimum requirements for meters operating within AMI system on end user connections:

User’s meter should allow the end user for the acquisition of information about recent consumption of electricity averaged at 15 minute intervals, or about current energy consumption (cumulatively);

The structure of end user’s meter should allow for the application of various technologies enabling communication with Home Area Network, in particular with HAN panel, and with the meters for other utilities. The way in which communication module is connected to HAN should be based on commonly used standards and protocols, and the meter should enable adjustment of internal software without interfering with the measuring unit and memory of measurement data.

Communication module in user’s meter should provide communication protocol (API) enabling communication between HAN devices and the meter and providing the user with access to the following information, at the least:

­ Measurement data concerning active energy collected from electricity DSO network and the value of active power in 15-minute cycles,

­ Date and time of measurement, ­ Communications from the operator, ­ Information about the change in energy price for the subsequent hour,

according to the current energy pricelist applicable to the user, ­ Other data, e.g. measurement data from meters of other utilities, ­ Unique identifier of the measuring device.

It should be recognized that once the requirements compliant with the position of the President of ERO are regulated in the future regulation issued on the basis of the new Energy Law, interoperability of the smart meter and HAN functioning in any secure technology should be ensured.

3.3.5. Interoperability within HAN

As stated in the Market Report, apart from the need to ensure interoperability between HAN

and AMI meter, interoperability of HAN devices must be ensured as well. On the one hand,

home gateway must be able to communicate with AMI meter communication module, and on

the other hand it must communicate with energy management system and individual

appliances or transmitters connected within HAN. If the commonly binding technical

standards for communication within HAN were agreed upon, the costs triggered by HAN

deployment and by switching the supplier of services and devices would be reduced, which

in turn would foster competition. This would have beneficial effect for the development of

HAN and related services.

Despite all those advantages, it is difficult to justify the concept based on the introduction of a

uniform HAN standard by legislation. Such a solution would be in conflict with Community

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regulations. In accordance with Article 36 of the Treaty, restrictions on freedom of movement

of goods within the Community must be introduced on the grounds of public morality, public

policy or public security; the protection of life and health of humans, animals or plants; the

protection of national treasures possessing artistic, historic, or archeological value; or the

protection of industrial and commercial property. Statutory guarantee of interoperability of

certain categories of appliances does not fall within the range of defined restrictions.

Likewise, restrictions in scope of provision of HAN services would be ineffective in light of the

freedom to provide services expressed in Article 56 of the Treaty and the already-mentioned

country of origin principle in the case of services provided by electronic means.

The only legislative path available for the state to decide about technical standards of HAN

devices is to impose the obligation upon distribution system operator to provide DSO

customers with a specified communication module and a specified home gateway together

with AMI meter. In that case, while specifying technical conditions concerning home gateway,

it would be possible to specify technical conditions for AMI network, including the choice of

communication channel. Such a solution, however, may trigger counter-productive

implications and it may lead to the adoption of legal provisions that go against new, emerging

technological solutions. At the end of the day, it may result in a situation when the costs

borne by the DSO (and transferred in the tariff onto the users) will not be paid back from the

standpoint of system operation efficiency – as users may decide not to utilize HAN whose

communication protocols ultimately turn out to be inconsistent with the market standard.

With regard to the regulation of standards of communication within HAN, it must be agreed

that the right approach is the one based on self-regulation of the sector, with potential

coordination measures taken by the state. Memorandum of Understanding concerning one

charger for all, signed by mobile phone manufacturers, can serve as an example of

successful effort for ensuring a uniform standard64. In the case of communication within HAN,

such an accepted standard might be SEP 2, for example, described in the Technological

Report.

Regardless of the comments above, it should be noted that the supplier of HAN devices is

required to follow the remaining regulations concerning electronic devices, such as the laws

on electromagnetic compatibility65 or conformity system66. Yet, these regulations do not set

forth more extensive restrictions for HAN that those in force with regard to other technical

appliances.

3.3.6. Measurement Information Operator

The draft Energy Law provides for the introduction of the institution of the central Measurement Information Operator (hereinafter: MIO.) MIO shall, inter alia:

64

http://ec.europa.eu/enterprise/sectors/rtte/chargers/index_en.htm 65

The Act of April 13, 2007, on electronic compatibility ((Journal of Laws of the Republic of Poland, no 82, item 556, with further amendments.) 66

The Act of August 30, 2002, on conformity assessment system (Consolidated text: Journal of Laws

of the Republic of Poland, no 138, item 935, with further amendments.)

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Create a central register of measurement data,

Manage that dataset by storing, processing, receiving and sending measurement information; keep a record of measurement points,

Develop and update requirements concerning smart meters, communication standards, and standards governing access to the central register of measurement information,

Prepare the manual for handling measurement information, develop classification of users to enable the development of a reading schedule for smart meters.

The key challenge related to the establishment of MIO is the wording of provisions concerning access to measurement information, which may raise doubts. Pursuant to Article 98, paragraph 4 of the draft Energy Law, MIO shall make the data available only and exclusively to the user (free of charge), as well as to the following entities, against a fee:

Electricity supplier of that user, in order to issue the invoice for the electricity consumed,

Electricity distribution system operator to whose grid end user’s devices, installations or networks are connected,

Electricity supplier authorized by the user in order to prepare electricity supply offer for that user.

Clearly, this limited catalog, with a specific list of entities eligible for user’s data, does not include HAN supplier. In other words, if the current draft version stays in force, HAN supplier will be able to obtain data from MIO only when acting on behalf of the user who has authorized HAN supplier to receive measurement information straight from the meter. Another controversy stems from the dilemma whether, in that case, the data should be provided gratuitously – as in the case when the data is provided to the user, or against payment – analogically to the provision of data to suppliers. In that context, appropriate modifications in the draft may turn out to be indispensable. Notwithstanding the above, it will also be necessary to determine the principles for user authentication and third party access approach67. It appears that in that regard either the risks for user data privacy or the barriers for HAN suppliers in terms of access to data may emerge. As can be concluded from the current position of the President of ERO68, Measurement Information Operator will not have the data explicitly identifying the user, but the measurement data linked to ID number of the metering point. In that case, when HAN service supplier requests access to the measurement data of the user who has expressed his or her consent to such access, MIO will not be able to verify effectively whether such consent had indeed been granted. A proper mechanism for user authentication by MIO will have to be developed, so that data access consent provided personally by the user is not required by MIO each and every time69. One can also picture a situation when MIO additionally collects a subscription fee for data access from electricity users, and the fee is used to finance HAN services provided by the supplier.

67

For instance, in the USA, GoogleMeter access to user’s data was based on a unique code

generated by the operator, and Microsoft Hohm access to user’s measurement data was conditioned

by a positive response of the user to three verifying questions. Potential mechanism for user’s consent

verification will have to be specified in measurement information operator’s instruction. 68

Concept note of June 4, 2011, concerning metering market in Poland, with particular emphasis on the requirements towards Measurement Information Operator [Koncepcja dotycząca modelu rynku opomiarowania w Polsce, ze szczególnym uwzględnieniem wymagań wobec Operatora Informacji Pomiarowej z dnia 4.06.2011 r.], www.ure.gov.pl

69 For instance, by a password attributed by the DSO to the metering point, provided to the user and

MIO, which – combined with the number – will be the authorization for measurement data collection.

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3.4. Legal barriers for the use of HAN for the purpose of control

and utilization of distributed energy resources

3.4.1. Significance of the utilization of distributed energy resources

Utilization of distributed energy resources connected within HAN can be an important market

development mechanism. HAN can perform merely the function of energy management tool

at the level of one’s own network, but thanks to the use of information and communication

capacity via AMI network it can also contribute to additional conservation effects. The subject

matter of distributed energy resources, including demand response and distributed

generation management, represents a broader issue that goes beyond the scope of this

Report. That is why the Report is focused on identification of fundamental barriers that

prevent the development of distributed energy resources, in particular in the households,

where HAN is supposed to be used.

3.4.2. Demand side response – tariff schemes

It is agreed that demand side response programs can be divided into two groups: Incentive-

Based Programs (IBPs) and Price-Based Programs (PBPs)70. As far as PBPs are concerned,

three categories can be distinguished: Time-Of-Use (TOU), Critical Peak Pricing (CPP), and

Real Time Pricing (RTP)71.

The regulatory model currently in force on Polish electricity market is mixed in nature, in a

sense that the development of prices of energy and energy supply services takes place

under two regimes, i.e. the regulatory/administrative regime and the free market regime. In

the first regime, applicable to the prices of electricity in the households and the prices of

distribution services, charges and rates are determined according to the tariff. In the other

regime, applicable to electricity prices for other users, prices are determined on the basis of

rates set on competitive market. Competitive market rates can be set freely by energy

companies, which were exempted from from the obligation to submit tariffs for approval by

the President of ERO, in the mode specified in Article 49a of the Energy Law. In January

2008, the President of ERO decided that trading companies would be exempt from the

obligation to have their electricity sales tariffs approved with regard to the customers other

than household users. It is assumed in the doctrine that the exemption from tariff approval

obligation is tantamount to the exemption from the obligation of tariff preparation and

publication in the manner prescribed for the tariffs approved by the President of ERO72. On

70

Opracowanie modelu stosowania mechanizmów DSR na rynku energii w Polsce ETAP I: Opracowanie przeglądu aktualnie stosowanych mechanizmów DSR [Development of DSR mechanism application model for energy market in Poland PHASE I: Preparation of a review of currently applied DSR mechanisms], published on the website of PSE-Operator S.A., available from: www.piio.pl 71

An in-depth discussion of pricing schemes is presented in the Market and Economic Report 72

M. Swora, A. Falecki, w: M. Swora, Z. Muras, Prawo energetyczne – Komentarz [Energy Law – A Commentary], Warszawa 2010, p. 1281.

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the competitive market, this means that CPP and RTP tariffs (price-lists) concerning the

development of electricity prices are admissible.

The companies that follow price regulation regime have to prepare tariffs and submit them for

approval by the way of administrative decision to the President of ERO (Article 47, Energy

Law.) The tariffs are to be calculated in a way that ensures covering the justified expenses of

the regulated activity, including a justifiable return on investment from such activity; and

protecting the customers against an unjustified increase of the prices and fee rates, and in

the case of tariffs of system operators, it should also ensure covering the justified expenses

incurred in relation to the execution of their tasks (Article 45, paragraph 1, Energy Law.)

Currently binding tariff calculation principles are laid out in the Tariff Regulation73, which

contains § 6 specifying the manner in which the users are divided into tariff groups. Pursuant

to that provision, users are divided into groups according to the voltage level at the point of

power supply, the value of contractual capacity, electricity consumption for household needs,

and according to the billing system and the number of time zones. Pursuant to § 6, paragraph

2 of the Tariff Regulation, the tariff can contain diverse rates for individual tariff groups, taking

into account the division of the day and the year into time zones and periods. There may be

more than one approach to the division of the day into time zones in the tariff.

Taking the above into consideration, it can be concluded that at present the application of

CPP and RTP tariffs, both with regard to the sales of electricity (in the segment of regulated

prices) and with regard to distribution service, is not permitted under the law as far as

electricity supply to households is concerned. In turn, TOU tariff application is allowed.

Simple, double zone varieties have already been applied on Polish market. Yet, their

utilization has been hampered by a technical barrier. With billing performed by means of

analog meters, there must be as many billing systems as there are zones in the tariff. In

addition to that, in view of the absence of billing based on current consumption, potential

benefits for the user arising from TOU tariff are deferred in time. Only digital meters will

enable data recording for many zones, and thanks to remote reading system it will be

possible to bill the users according to consumption in each time zone.

The mere fact of the presence of tariff provisions as an instrument of administrative price

control (in group G) constitutes a primary obstacle to the development of tariffs in the trade

sector. This model substantially impedes the emergence of real price competition among

energy companies and, consequently, it has adverse influence on the interest in innovative

pricing formulas. It is only when the tariffs for households are liberated that a competitive

market in that area will be established, and suppliers will be encouraged to offer modern

energy management mechanisms to the users. One should also consider the possibility of

introducing more flexible rules for tariff setting by grid operators. In particular, it would seem

reasonable to allow distribution operator to use the basic tariff approved ex ante by the

President of ERO under hitherto applied principles, and to permit free introduction of

alternative tariffs to be used by interested users, e.g. within the framework of AMI pilot

schemes.

73

Regulation of the Minister of Economy concerning detailed principles of the establishment and calculation of tariffs and billing principles for trade in electricity (Journal of Laws 2011, No 189, item 1126, with further amendments), hereinafter: Tariff Regulation.

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3.4.3. Demand side reaction – IBPs

Apart from pricing schemes based on customer billing rules agreed in advance, demand

management programs used in practice also include active incentive schemes for users.

These programs include: Direct Load Control (DLC), Interruptible/Curtailable Rates (ICRs),

Demand Bidding Program (DBP), Emergency Response and Disaster Preparedness

(ERDP), Capacity Market Program (CMP), Ancillary Services Market Program (ASMP)74.

These programs vary in terms of the entities interested in the purchase of such services, or

the type of response required from the participant. Compensation principles, depending on

the nature of the service, may be based on the payment for actual reduction as well as on

the payment for reduction preparedness. In most cases, small users may participate in those

programs though an integrator responsible for gathering a group of users who together

represent adequate volume of energy consumption and for maintaining contractual relations

with those users75.

In the current state of the law there are no provisions on the basis of which such programs

could be implemented. In principle, in the case of domestic (country) market, capacity

reduction achieved thanks to DSM could be used by the entities responsible for trade

balancing (with the purpose to attain trade balance in the group), or power system operators

(with the purpose to attain technical balance in the system.) De lege lata, it is allowed to

create balancing groups. In accordance with the System Regulation, for settlements resulting

from electricity unbalancing, the point of electricity supply can be the physical point of

connection equipped with the metering and billing system, or a sum of such points. In other

words, it is permitted to create balancing groups made up of the sum of metering and billing

points. Yet, lack of smart metering system precludes the aggregation of users in the

households in order to create the group, since for the group to be created it must be

possible, in real time, to receive control commands, and to provide the information

concerning the change in the volume of electricity consumption on an ongoing basis. Only

once smart metering system is established will it be technically possible for balancing entities

to integrate small users for the purpose of group balancing.

Power grid operators are the key entities that might be interested in the purchase of offered

capacity reduction. They are the ones responsible for the security of grid operation and they

are in charge of technical balancing of the grid, and in the case of the TSO – for trade

balancing as well. Operators may benefit from the service of reduced electricity consumption

– firstly, as an alternative for generation units, and secondly in order to regulate network

flows.

74

D.D. Rasolomampionona, S. Robak, P. Chmurski, G.Tomasik, Przegląd istniejących mechanizmów DSR stosowanych na rynkach energii elektrycznej [Review of existing DSR mechanisms applied on electricity markets], Rynek Energii 4/2010 75

Opracowanie modelu stosowania mechanizmów DSR na rynku energii w Polsce ETAP I: Opracowanie przeglądu aktualnie stosowanych mechanizmów DSR [Development of DSR mechanism application model for energy market in Poland PHASE I: Preparation of a review of currently applied DSR mechanisms], published on the website of PSE-Operator S.A., available from: www.piio.pl

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At present, the potential of the use of electricity consumption reduction offers for the purpose

of system balancing is very much limited. The option to benefit from consumption reduction

service, as an ancillary service, can be purchased and used (in accordance with the catalog

of ancillary services listed in p. 2.1.10. of IRiESP Transmission Grid Code) only by

transmission system operator and solely in the case of intervention work. All other ancillary

services can be rendered for system operators only by the Generators.

3.4.4. Micro-generation and energy storage – legal barriers

One of the key premises of HAN concept is to enable the users to perform active (prosumer)

functions by combining reception devices with generation or storage devices within HAN.

Under such a model, the user would become a so-called active user (prosumer), who not

only consumes electricity from the grid, but also periodically gives some electricity back to

the grid. However, the users who wish to harness the potential of small energy sources or

storage facilities must face a number of legal barriers. The presence of those barriers, with

concurrent development of micro-generation technologies, can result in the phenomenon of

disconnection of users from the grid and transfer to island operation, which is dangerous

from the standpoint of the system and, in the long haul, may lead to an increase in the cost of

participation in the system for inactive users, and to reduced security of energy supply.

A primary problem issue is the requirement of a license to be held for each and every source

of electricity from renewable energy sources. Energy generation from renewable sources

without a license required by the law with the purpose to sell that energy is an offense.

Furthermore, it precludes the environmental bonus in the form of certificates of origin. In the

case of the households, it requires business activity registration and transfer from the

household tariff to the tariff designed for entrepreneurs. Likewise, the requirements

governing grid connection for small generators hamper the performance of prosumer

functions by the users. Generators, regardless of their size, have to define, among other

things, the maximum annual volume of generated electricity and the volume of electricity

supplied to the grid; installed, generating, available and apparent capacity of generation

units; the scope of permissible changes in the load of generation units or their groups; the

number of connected generation units; the volume of planned demand for power and

electricity in order to meet generator’s own needs; the degree of reactive power

compensation. Moreover, regardless of the size of connection terminal, if generator status is

granted, the generator must bear the costs of installation of a metering and billing system. A

number of barriers related to the requirement to obtain a building permit or a water permit are

also pointed out76.

On a positive note, most of those issues have been taken into account in the draft RES law

prepared by the Minister of Economy. In the draft law, the category of a micro-installation is

introduced, i.e. renewable energy source installation with the capacity installed below 40 kW

of electricity (or 100 kW in the case of electricity generated from agricultural biogas.)

76

D. Gadzialski, Potencjał rozwoju rynku prosumenta w obliczu polskich uwarunkowań systemowych [Potential of development of prosumer market in light of Polish system conditions], Acta Energetica issue 3/2010, pp. 13-17

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According to the draft, generation of electricity is supposed to become, instead of a licensed

activity, an activity regulated under the law on the freedom of establishment77. The law

provides for preferential mode of micro-installation connection, in particular, no connection

fees and the cost of the meter transferred onto the DSO. According to the law, the obligation

of purchase of energy from RES by energy companies dealing with the sales of energy to

end users is maintained in the case of micro-installation. On top of that, with regard to active

users (prosumers) who sell up to 30% of generated energy, the price of compulsory

purchase may exceed average market prices. Furthermore, it is prescribed in the law that the

expenses connected with the purchase or assembly of micro-installation can be deducted

from tax base calculation. In the rationale of the draft law it is stated that in the future an

analysis of the potential for the simplification of construction law provisions will be

indispensable.

Regardless of the flaws of certain aspects of the draft, highlighted during social consultations

in course of legislative process, such as, for example: an obligation to have expert’s opinion

drafted when making connection terminal, lack of a clear definition of an entity entitled to

apply for the issuance of a certificate of origin in the case when energy is sold at a regulated

price, or a clear procedure for selecting the entity obligated to make such purchase; those

solutions certainly remove a number of barriers related to the establishment of micro-sources

relying on renewable sources of energy.

In the context of the draft, one should also highlight other barriers which (according to the

state of knowledge available at the point of Report preparation) have not been taken into

account. In particular, the draft does not refer to the supply of stored energy to the network. If

a user has energy storage facility, e.g. an electric car, the user cannot be treated as a

generator in the meaning of the Energy Law; at the same time, due to connection rules it is

not possible to bill the energy supplied by the user to the network. Furthermore, the issue of

taxation of services and energy generated within the framework of distributed energy sources

has not been resolved – which will be discussed in more detail further in the Report.

When discussing potential solutions supporting broadly understood distributed energy

sources, one should take into account the possibility of energy purchase obligation imposed

upon power operators. That requirement might be broad – as in the case of energy from

RES, or limited, e.g. for grid balancing purposes. In the limited model, TSO would be obliged

to purchase in the first place the energy from micro-generation to cover network losses or

make up for energy shortages on the balancing market.

3.4.5. Entities on the market of distributed energy resources and their

relations with the consumer

As indicated earlier in the Report, operation of HAN service suppliers should not be subject

to any specific regulations concerning the delivery of infrastructure and provision of energy

management services. The situation becomes more complicated, however, when the

77

The Act of July 2, 2004, on the freedom of establishment (Consolidated text: Journal of Laws 2010,

No 220, item 1447, with further amendments.)

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management of distributed energy sources is put in focus. With respect to the services

related to power consumption reduction, it is expected that new entities – i.e., integrators of

active users - will emerge. As can be concluded from the work carried out by PSE-Operator

S.A., the operator does not intend to embark on direct cooperation with small users78.

Instead, the development of a new function of an integrator of active users is planned.

According to DSR model presented by PSE-Operator S.A., potential tasks of the integrator

would include: direct involvement in transmission system operator’s incentive-based DSR

schemes, settlements with the TSO or supplier in respect of participation in DSR programs

organized by those entities, and settlements with the users in respect of their indirect

participation in such DSR programs.

It can be argued that HAN service supplier might be the entity pre-destined for the role of an

integrator under the model since, in principle, installation of HAN infrastructure with the users

is required for the successful launch of demand response programs. Under the

circumstances, the benefits obtained from the provision of ancillary services under DSR may

be the basis for co-funding the cost of HAN installation with the user.

In that context, proper level of user protection and security of the power system in scope of

performance of integrator’s duties will be crucial for the dissemination of HAN-related

services. It appears that, in fact, offering ‘negawatts’ should be approached in the same way

as the sales of electricity. It should be considered whether DSR service integrators ought to

be subject to regulatory regime in order to protect users against groundless disconnection or

unfounded reduction in available capacity. With the purpose to safeguard the user who is a

consumer, a maximum permitted sanction (contractual penalty) for failing to reduce the

demand the user had committed to can be regulated, for example. Furthermore, if the

provision of HAN infrastructure should be based on the principles already developed for the

telecommunications market (i.e., co-funding of the cost of HAN equipment in exchange for

concluding a long-term agreement), other mechanisms supporting user protection can be

introduced as well79.

3.4.6. DSO role in terms of balancing and provision of ancillary services

Use of HAN for the purposes of grid operation is a measure that can contribute to the

development of distributed energy sources. At present, DSOs do not enter into demand

reduction agreements aiming at the regulation of distribution network – they are not

78

Opracowanie modelu stosowania mechanizmów DSR na rynku energii w Polsce, ETAP III: Opracowanie szczegółowego rozwiązania mechanizmów DSR dla KSE [Development of DSR mechanism application model for energy market in Poland, PHASE III: Preparation of a detailed solution concerning DSR mechanisms for NPS], www.piio.pl 79

A case in point can be the provision set forth in Article 57, paragraph 6 p, quote: ‘In the event of concluding an agreement for the provision of telecommunications services, including connection to a public telecommunications network, associated with an allowance granted to the subscriber, any claim resulting from unilateral termination of an agreement by the subscriber or a service provider due to the subscriber’s fault prior to the termination date fixed in an agreement may not exceed the value of an allowance granted to the subscriber reduced by its proportional value for the period from concluding the agreement to its termination date.’ Such a solution would also serve as a safeguard for the users who are not consumers.

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competent to do this within Polish National Power System (NPS.) Yet, a substantial portion of

costs related to Smart Grid implementation is borne by the DSOs. Moreover, distributed

energy sources managed within HAN will be connected to DSO network. This speaks for

partial transfer of rights towards DSOs in terms of ordering and delivery of ancillary services

and balancing of distribution networks, as they develop. The literature points at the possibility

of solutions that consist in the development of separated electric power areas managed by

distribution system operators in the case when DSO is not connected directly to transmission

grid80. The benefits arising from local balancing markets developed by DSOs are also put in

focus81. According to the assumptions of the new model, in the future DSOs might provide

services in scope of secondary and tertiary regulation, peaking power reserve, voltage and

reactive power control, and so-called system black start following a serious shutdown82.

3.5. Other utilities within HAN

To be able to use HAN to control other utilities, the user must have a smart meter measuring

consumption of those utilities. Pursuant to the Energy Law, currently in Poland there is no

obligation to install smart meters for gaseous fuels. Drafts of the new Energy Law and Gas

Law do not modify that status. By the same token, there are no smart metering provisions in

the heating sector and water supply area. Given the obligation laid out in Directive

2009/73/EC one should expect that, in the first place, statutory regulations for smart metering

in gaseous fuel distribution will be drafted.

In this context, a key issue is the capacity to transmit the data from the meters via AMI meter.

Once home gateway is installed, it may turn out that concurrent communication of AMI meter

and meters of other utilities and home gateway will not be possible, and data transfer can

only be done through the gateway, which may potentially threaten the security of

measurement data concerning other utilities. Also, if AMI communication channel is applied,

the principles governing compensation for DSOs in power sector area in exchange for

transmitted information will have to be defined in the tariff.

An alternative model consists in the transmission of data from gas meter through the home

gateway and universal communication channel to MIO or another entity authorized to collect

measurement data.

80

R. Gawin, Bilansowanie wyodrębnionych obszarów elektroenergetycznych w sieciach dystrybucyjnych w kontekście realizacji zasady TPA przez lokalnych OSD [Balancing separated electric power areas in distribution grid in the context of implementation of TPA rule and local DSOs], Biuletyn URE [Bulletin of Energy Regulatory Office], no 5/2010. 81

P. Bućko, Usługi Bilansowania Systemu Dystrybucyjnego [Distribution system balancing services], Acta Energetica, issue 2/2010, pp. 7-14 82

R. Czyżewski, M. Wrocławski Koncepcja funkcjonowania sieci dystrybucyjnych, opartych na

lokalnych obszarach bilansowania czynnikiem wspierającym rozwój generacji rozproszonej i poprawę

efektywności energetycznej [Concept for the operations of distribution grid based on local balancing

areas as a factor supporting the development of distributed generation and energy efficiency

improvements], Biuletyn URE URE [Bulletin of Energy Regulatory Office], no 1(79)/2012, p. 44

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3.6. Processing of measurement data by HAN service provider

3.6.1. Privacy and security of personal data

In Polish legal system, personal data protection provisions are contained predominantly in Personal Data Protection Law, implementing Directive 95/46/EC83. It should be remembered that, as was mentioned in the section dedicated to European regulations, measurement data of individuals will represent personal data due to the fact that it can be assigned to a specific individual. Indirectly, as a confirmation of this position on the grounds of Personal Data Protection Law, one can refer to the decision adopted in jurisdiction, stating that IP address is an example of personal data84. In the case of HAN service provider, who will always know which data pertains to which user, the possibility of such an attribution is beyond any doubt85.

Notwithstanding Personal Data Protection Law, processing of personal data by HAN service provider may also fall within the realm of the Law on Services Provided by Electronic Means in scope of personal data protection, because a significant portion of HAN services can be provided by electronic means86.

In view of the above, HAN service provider will be classified, as a rule, as an administrator of personal data in the meaning of Personal Data Protection Law, since he will decide about the purposes and means of data processing, and he will have to adhere to the duties prescribed by the law. In particular, HAN service provider will have to obey personal data processing rules set forth in Article 26, paragraph 1 of Personal Data Protection Law. In line with administrator’s duties indicated in the provision, the administrator performing the processing of data should protect the interests of data subjects with due care, and in particular to ensure that:

The data is processed lawfully (principle of legality),

The data is collected for specified and legitimate purposes and no further processed in a way incompatible with the intended purposes (principle of appropriateness),

The data is correct in terms of its substance (principle of correctness),

The data is relevant and adequate to the purposes for which it is processed (principle of relevance),

The data is kept in a form which permits identification of the data subjects no longer than it is necessary for the purposes for which it is processed (principle of time limitation.)

Processing of personal data by HAN service supplier will be based on the premise of user’s

consent, or on the fact that the data is necessary for contract conclusion or execution. In the

case when personal data processing is based on the premise of user’s consent, such

consent must be conscious and explicit. Processing of measurement data for the purpose of

83

The Act of August 29, 1997, on the Protection of Personal Data (Consolidated text: Journal of Laws 2002, No 101, item 926, with further amendments), hereinafter: Personal Data Protection Law. 84

Chief Administrative Tribunal in the decision of May 19, 2011 (file signature I OSK 1079/10), LEX no 658589. 85

Side by side with the measurement data itself (related to energy consumption), personal data will

include IDs of devices within HAN, which – in the case when permanently assigned to the device –

may also disclose detailed information about the equipment and devices operated by the user. 86

The Act of 18 July, 2002, on Providing Services by Electronic Means (Journal of Laws, No 144, item

104, with further amendments), hereinafter: the Law on Services Provided by Electronic Means.

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contract conclusion or execution can take place only and exclusively within the scope of the

data which is truly indispensable for contract execution, in line with the principle of relevance

of data under processing. It should be agreed, in principle, that the premise of justified

interest of data administrator is not applicable to the processing of measurement data.

Firstly, to be able to rely on that premise, one would have to assess whether the use of data

does not violate the rights and freedoms of the person whose data is being processed. In

view of special character of the data, the risk of such unjustified violation of rights and

freedoms is significant87. Secondly, in most cases measurement data processing will be

governed by the Law on Services Provided by Electronic Means. In Article 19 of that law it is

prescribed that personal data can be processed without a separate consent of the user for

the purpose of service provision, and once such service is completed, only for strictly defined

purposes.

When processing measurement data, HAN service provider will also have to adhere to other requirements, such as: disclosure requirement, obligation to register data sets, obligation to make sure that the rights of the person involved can be exercised (a separate analysis is required to deal with the necessity of restricting the right of the user to change personal data collected in the register.)

Obligations in terms of protection of personal data by data administrator are set forth in Personal Data Protection Law, Articles 36 through 39, and in the Regulation88. Those obligations also apply to the entity authorized by HAN service provider, by way of a written agreement, to process personal data. According to these obligations, the administrator shall:

Develop documentation describing the manner of personal data processing, comprised of security policy and the computer system management instruction,

Define the procedures according to which personal data processing authorizations are granted,

Keep the register of persons authorized to carry out the processing of data,

Appoint an administrator of information security who supervises the compliance with personal data security principles,

Implement technical and organizational measures concerning computer systems in which personal data is being processed, appropriate to the risks and security levels defined in Personal Data Protection Regulation (basic, medium, high.)

3.6.2. Potential privacy-related risks for HAN operation

When indicating major risks connected with the application of Personal Data Protection Law

to the processing of measurement data, one must not overlook the possibility of the so-called

sensitive data being processed by HAN service provider. Measurement data can disclose the

information about user’s health status, e.g. with the information on energy consumption by

medical apparatus. User’s health information can be inferred by HAN supplier from the

87

Except in special cases justified by the circumstances, such as, for example, processing of data for

the purpose of a dispute with service user as to the correctness of service provision 88

Regulation of the Minister of Internal Affairs and Administration of April 29, 2004, as regards personal data processing documentation and technical and organizational conditions which should be fulfilled by devices and computer systems used for the personal data processing (Journal of Laws of 2004, No. 100, item 1024), hereinafter: Personal Data Protection Regulation.

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measurement data in possession of the supplier, or the user himself/herself can notify HAN

service provider about medical equipment on the premises to make sure that power supply

priorities are set properly. As far as sensitive data is concerned, processing is permitted only

pursuant to one of the premises specified in Article 27 of Personal Data Protection Law.

Written consent of the user will be the only applicable premise in that case. Execution of a

contract involving HAN services cannot be the only reason for processing of such data. In

particular, the premise set forth in Article 27, paragraph 2, point 7 of Personal Data

Protection Law, concerning processing done by data administrator for the purposes of

preventive medicine, the provision of health care services, or patient treatment, shall not

apply. The law specifies that the group of entities covered by that provision is limited to

health professionals involved in treatment or provision of other medical services. Such status

will hamper the capacity for HAN service provision by means of electronic communication, if

the service entails the possibility of processing of measurement data disclosing user’s health

condition. Under the circumstances, HAN service provider will have to obtain written consent

of the user.

Another problem issue that can emerge in practice is the fact that measurement data can

represent personal data of an individual other than the user. Specifically, this would be the

case of a rented apartment, for instance. In such circumstances, it may happen that energy

consumption data will be processed by the landlord, even though the data discloses

information about the tenant. The US Department of Commerce suggested a solution

whereby user’s data is made available only upon consent of such a tenant89. It seems,

however, that this would represent a potential privacy-related risk which will not be easy to

tackle in practical terms. There is no way to impose the obligation on HAN service supplier to

verify who is the person actually using power connection.

3.6.3. Secrecy of measurements

The main problem which can adversely affect HAN dissemination consists in relatively low

level of protection of measurement data against third party access, relative to the scope of

information measurement data can disclose. Measurement data is protected from

unauthorized access (HAN intrusions) of a third party, because Article 267 § 1 of the Penal

Code90 penalizes the person who acquires information not destined for him by connecting to

a wire that transmits information or by breaching electronic protection for that information91.

With the exception of personal data protection provisions, measurement data obtained in

legal manner is not protected.

89

Introduction to NISTIR 7628 Guidelines for Smart Grid Cyber Security The Smart Grid Interoperability Panel Cyber Security Working Group, September 2010, p. D-4 90

The Act of June 6, 1997: The Penal Code (Journal of Laws of 1997, No 88, item 553, with further

amendments.) 91

It is true that, as indicated earlier, there may be doubts as to whether HAN is a wire that transmits

information, but in Article 267, § 2 and 3, acquiring access to a computer system, in whole or in part,

as well as installing or using tapping, visual detection or other special equipment in order to acquire

information which the person is not authorized to access, is also regarded as an offense.

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Access to measurement data can be granted to a third party only provided that the entity

receiving the data has met at least one of the conditions legalizing processing. Thus,

measurement data can be imparted to the entities eligible for the processing of personal data

pursuant to legal provisions, as well as to the entities which have a justified interest in the

processing of such data, e.g. in connection with the pursuit of civil law claims. This may

mean that measurement data will be disclosed by HAN service providers and utilized for the

purposes other than the provision of HAN services. It may happen that measurement data

will be disclosed not only for widely accepted reasons, such as, for example, prosecuting

crime, but also for the reasons which will not be acceptable for the general public. If detailed

user profiles were to be disclosed for relatively trivial purposes to the persons or bodies

authorized to acquire personal data - for example, with the purpose to prove the use of

amplifiers, forbidden at night time (pursuant to Article 10a of the law on municipal guards92) –

this might effectively discourage the users from relying on the services of HAN suppliers.

Considering the above, one should take into account the possibility of introducing a special

institution dealing with protection of measurement data against unjustified processing,

disclosure and sharing. Professional secrecy might be such an institution. The requirement of

measurement data secrecy has been implemented in Belgian legislation, inter alia93. The

proposal involving special requirements for sharing measurement data is reflected in the US

doctrine, with the most advanced development of Smart Grids94. With the introduction of

measurement secrecy, the entities involved in the processing of measurement data would be

subject to an additional legal obligation to keep the data confidential; also, measurement

data that does not belong to a natural person, e.g. measurement data of legal persons,

political parties or religious associations, would be protected, and the circle of entities

allowed to request access to information would be restricted.

Country regulations provide for the institution of professional secrecy with regard to a number

of professions of public trust. In that context, the following professions subject to the statutory

requirement of secrecy can be named: a lawyer, a doctor, a dentist, a nurse, a midwife, a

journalist, a psychologist, a broker, a tax advisor. Further, it is pointed out that there is a

category of professional secrecy associated not so much with a profession of public trust

pursued by a specific individual, but rather with a specific type of activity pursued by an

organization. These provisions include: Law on the Organization and Operation of Pension

Funds, Banking Law, Commodity Exchange Law, Insurance Activity Law, Postal Law, Law

on Investment Funds, Telecommunications Law, Law on Trading in Financial Instruments95.

At first glance, it appears that hypothetical secrecy of measurements is not connected with

the two basic aspects which are protected by the above-mentioned secrecy, i.e. protection of

information about assets and protection of confidentiality of communication. It must be noted,

however, that data collection within Smart Grids is a complete novelty from technical

standpoint. Mass processing of data which can help define people’s behavior can only be

compared to profiling capacity of telecommunications operator. It should be remembered that

92

The Act of 29 August 1997 on Municipal Guards (Journal of Laws, No 123, item 779, with further amendments) 93

European Regulators’ Group for Electricity and Gas Status Review on Regulatory Aspects of Smart Metering (Electricity and Gas) as of May 2009. 94

S.K. McNeil, Privacy and the modern grid, Harvard Journal of Law & Technology, Volume 25, No 1, Fall 2011. 95

P. Kozłowska-Kalisz, Odpowiedzialność karna za naruszenie tajemnicy przedsiębiorstwa [Criminal liability for company secrecy violation], in Lex 2011.

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telecommunications secrecy pertains not only to the content of the message, but also to the

so-called transmission data connected with the manner of service provision, i.e. the data

processed for the purpose of transmission of communication in telecommunications networks

or calculating the fees for telecommunications services. It seems that in terms of its

character, measurement data is similar to transmission data, i.e. it can be used, based on

the usage of devices, to define user’s behavior; and the difference is the fact that

transmission data helps define user’s behavior outside of home (location data), whereas

measurement data can be used to define user’s behavior at home. Actually, this represents

another argument supporting the need for stronger protection of measurement data.

When discussing potential scope of secrecy, one can follow the example of

telecommunications provisions, and say that the processing of measurement data should

take place only upon compliance with certain specified conditions, i.e. when such processing

is the object of the service or it is indispensable for service provision, there is user’s consent,

it is necessary for the execution of tasks of distribution or transmission system operator or

measurement information operator, or when it is required for other reasons provided for the

in the law or separate regulations. Considering potential security of secrecy in the context of

the decision of the Supreme Administrative Court96, ruling that claims pursued in a civil law

procedure are a justified premise for disclosing the data subject to telecommunications

secrecy, it would also seem reasonable to define a catalog of entities which are allowed to

request the disclosure of confidential data97.

3.7. Application of Telecommunications Law provisions

In light of Telecommunications Law98, considerations presented in Section 2 c) of the Report, arguing that telecommunications services provided by HAN supplier do not have a ‘public’ status, remain in force. Consequently, HAN operation cannot be, in principle, regarded as provision of public telecommunications service in the meaning of Telecommunications Law.

Since HAN service provider shall not provide a public telecommunications service, the user cannot be considered as a ‘subscriber’, ‘user’ or ‘end user’ in the meaning of Article 2 of Telecommunications Law. Pursuant to Article 2, point 1 of Telecommunications Law, a subscriber is an ‘entity who is a party to an agreement for the provision of telecommunications services concluded with a provider of publicly available telecommunications services’. The notion of publicly available telecommunications services is also referred to in the definitions of a ‘user’ and ‘end user’. Thus, HAN service users will not be protected in a special way, e.g. by the right to switch supplier, on the premises specified in Telecommunications Law.

96

Supreme Administrative Court in the decision of May 19, 2011 (file signature I OSK 1079/10), LEX no 658589 97

As is the case with the Banking Law, for example, where in Article 105, paragraph 1, point 2, there is a detailed list of entities which are entitled to request access to information subject to banking secrecy. 98

The Act of July 16, 2004: Telecommunications Law (Journal of Laws, No 171, item 1800, with

further amendments), hereinafter: Telecommunications Law.

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Should HAN service provider be considered as a supplier of non-public telecommunications services (e.g., due to independent provision of additional communication channels between the user and HAN), HAN service provider would be required to, inter alia:

Get registration (Article 10, Telecommunications Law),

Pay annual telecommunications fee (Article 183, Telecommunications Law) if the revenues obtained by HAN service provider in the financial year two years prior to the year for which the fee is due exceeded PLN 4 million,

Conform with reporting obligations to the President of UKE (Office of Electronic Communications.)

In order to dispel those doubts, an explicit provision could be introduced to exempt the communications associated with distribution or transmission grid management, transmitted via smart distribution grid and within HAN, from the regime of Telecommunications Law.

3.8. HAN project funding

3.8.1. HAN development financed through energy company tariff

When discussing HAN development based on DSO funding or DSO co-funding, one must

note that provision of HAN infrastructure (which represents a lion’s share of the cost) is not

among DSO tasks as defined in Article 9c, paragraph 3 of the Energy Law. Yet, energy

companies are permitted to get involved in such activities, according to regulations. In Article

45, paragraph 2 of the Energy Law, it is stated that the tariffs may include the costs of co-

funding provided by energy enterprises for the projects and services aimed to reduce the

consumption of fuels and energy by customers, which economically justify the avoidance of

the construction of new energy sources and grids. Still, it must be acknowledged that under

present-day regulations, actual financing of HAN infrastructure components by DSOs will

only be permitted to a limited extent. First of all, it may not turn out to be profitable right now

for DSOs to finance energy efficiency measures, and secondly, DSOs have no guarantee

that the President of ERO, while approving of the tariff, will decide that co-financing of

displays or home gateway is economically justified.

As indicated in the Economic Report, the system of setting price rates and fees in operators’

tariffs will represent a significant barrier for the implementation of AMI system and potential

involvement of power system operators in Smart Grid development. Pursuant to the provision

of Article 45 of Energy Law, the tariffs cover the justified expenses of the business activity

and a justifiable return on investment. In other words, in the tariff there is no premium for

innovation or quality of services rendered by the operator. To modify the model, instead of

tariff approval based entirely on cost, the process would have to be based on innovation and

business efficiency improvements. The United Kingdom is quoted as the best example99: in

99

RIIO - a new way to regulate energy networks, available from: http://www.ofgem.gov.uk; W.

Lewandowski B. Mroczek, Regulacja obszaru dystrybucji energii elektrycznej w Wielkiej Brytanii

[Regulating electricity distribution in the UK], available from: http://cire.pl; M. Swora, The Smart Grid

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2010, the UK regulator, Ofgem, adopted RIIO price regulation model (revenue = incentives +

innovation + outputs)100. According to the model, the regulator sets the guidelines for

expected action steps and objectives for energy companies. In turn, energy companies are

required to present business plans including the plans of investments and actions needed to

achieve the objectives set by the regulator. Once the plans have been approved by the

regulator, in the future there is no review of investments, instead, the outputs are examined.

The system includes rewards for performance above target and penalties for poor

performance, to be taken by distribution companies. The regulation is not limited to setting

directions, it also deals with the analysis of outcomes of hitherto undertaken efforts. Indeed,

there are some critical voices pointing at the flaws of the model101, but they do not question

the positive impact of that solution on the level of innovation in regulated companies. The UK

is not the only country where operators’ performance is being assessed. Italy and Norway,

for example, also introduced the mechanism based on the quality of energy supply, as well

as a system of rewards and sanctions for achieving or failing to achieve a target level of

service reliability102. Setting the tariffs that reward innovations introduced by DSOs will be an

important factor affecting the development of Smart Grid.

To mitigate the risk borne by the DSOs in connection with co-funding of energy efficiency

investments, it is necessary to define a mechanism whereby the President of ERO would

verify DSO projects prior to their implementation and guarantee at an earlier stage that

project costs would be included in the tariff, or refuse to include it in the tariff. As a sample

solution, one can mention regulatory agreement proposed in the draft energy law, according

to which the President of ERO and energy company may enter into an agreement to classify

the costs specified in the investment as justified costs. It is true that the legal mechanism

involving a public law agreement concluded by and between a private entity and a public

entity must raise doubts in the framework of Polish legal system103, but working on the model

in which the regulator and an energy company agree on necessary investments and

expected outcomes must be regarded as a step in the right direction, to be further elaborated

on in terms of its legal structure.

3.8.2. Energy Efficiency Law – system of energy efficiency certificates

Directive 2006/32/EC on energy end-use efficiency and energy services has been implemented in Energy Efficiency Law104. The establishment of the mechanism involving

and a Regulation of ‘New Generation’, in: J. Tarajkowski (ed.), Energy Factor in Economic Policy, Poznań 2010, p. 220. 100

With regard to distribution system operators, the new model is to be approved for the subsequent regulatory period starting from 2015. 101

C. Cambini , E. Fumagalli, A.Croce, Output-based incentive regulation: benchmarking with quality of supply in electricity distribution, available from: cataire-eppp.org 102

R. Vailati, L. Lo Schiavo The Italian incentive regulation for improving the continuity of electricity transmission, available from: http://www.aaee.at 103

Administrative agreements are concluded between organs of public administration with the purpose to assign the execution of public tasks, for example, but not with the purpose to define public law obligations of administered entity. 104

Energy Efficiency Law of 15 April, 2011 (Journal of Laws of the Republic of Poland, no 94, item 551), hereinafter: Energy Efficiency Law.

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energy efficiency certificates, also referred to as white certificates, designed to reward projects involving savings in primary energy consumption, was one of its fundamental premises. Demand mechanism is supposed to be ensured in the same way as in the case of the other ‘color-coded’ obligations – entities selling electricity to end users105 are required, on statutory terms, to submit for redemption a specified quantity of white certificates with the value expressed in tons of oil equivalent, equal to the product of 3% of substitution fee and the amount of revenue obtained from the sale of electricity, heat or natural gas to end users106, or to pay substitution fee. The amount of substitution fee unit is defined by the minister competent for economy in the range between PLN 900 and PLN 2700 per one ton of oil equivalent (‘toe’.) The entities can either obtain the certificate themselves, or purchase a certificate from the entity that has received it.

On the other hand, the rules governing the manner in which energy efficiency certificates are granted are different. Energy efficiency certificates are granted to the entities which have won a tender involving energy efficiency improvement projects for which energy efficiency certificates can be granted. During the tender, bidding entities themselves determine the value of energy performance, i.e. the ratio of the amount of energy saved per year, on average, as a result of the project or projects of similar nature aiming at achieving energy efficiency improvements, to the value of energy efficiency certificate.

The tender is organized separately for the following categories of projects focused on energy efficiency improvements:

Increasing energy conservation by end users,

Increasing energy conservation by devices operated to meet one’s own needs,

Decreasing losses in transmission or distribution of electricity, heat or natural gas.

Minimum value of declared energy performance eligible for the certificate of origin is defined by bid acceptance ratio, specified by the Minister of Economy107, and by the average value of energy performance in the tender for a given project category. An enterprise will receive certificate of origin with the declared energy performance value provided that the entities with a higher declared energy performance value have not already used up the pool of certificates to be awarded during that tender.

The tender is open for energy efficiency improvement projects which yield energy savings in the volume equivalent to at least 10 toe on average during the year, or projects of similar nature aiming at energy efficiency improvements which yield total energy savings in the volume equivalent to at least 10 toe on average during the year.

Detailed list of energy projects will be presented in the notice of the minister competent for economy; according to the law, the list should include the following items, in particular:

Insulation of industrial plants,

Reconstruction or renovation of buildings,

Refurbishment of: ­ Household equipment, ­ Lighting, ­ Equipment for one’s own use,

Equipment and systems used in industrial processes,

Local heating networks and local sources of heat,

105

Or the end user making a purchase on a commodity exchange on one’s own account, or a brokerage house making the purchase on commodity exchange on account of that end user. 106

Or, in the case of a brokerage house, the value of their electricity, heat or natural gas purchases on a commodity exchange in a given year. 107

In the first tender, the ratio will be lower than 0.5.

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Energy recovery in industrial processes,

Reduction of: ­ Reactive power flow, ­ Network losses, ­ Transformer losses,

Heating and cooling using the energy generated in one’s own renewable energy sources or RES connected to the grid, heating from cogeneration, or waste heat from industrial plants.

Concluding, according to Energy Efficiency Law, HAN infrastructure development is not regarded as an energy efficiency improvement measure. As of the date on which the Report is drafted, the notice with the list of such measures has not been published yet.

It should be noted that the capacity in which support mechanism could be used for HAN development is restricted. The law gives priority to solutions focused on simple energy conservation function. HAN, in turn, is a multi-dimensional project leading to other benefits as well, which cannot be quantified within white certificate system. Even leaving aside the fact that it is practically impossible to accurately determine energy savings obtained within HAN (which would be required to be able to participate in a tender), the key point is that those benefits are divided among system participants. A significant portion of savings effect will be observed on the side of the users, who cannot directly participate in tenders due to the barrier of 10 toe, and an equally significant portion of savings will be attributed to system operators. Thus, execution of HAN-related projects will belong concurrently to two categories of energy efficiency improvement measures. There are no regulations providing for the division of energy performance under one project to two categories of savings under separate tender procedures. For those reasons, it must be concluded that the mechanism of efficiency certificates, as a rule, shall not apply to HAN. Yet, the mechanism of certificates as such could well be applied to the development of a HAN-dedicated support system, which is discussed in the next sub-section below.

3.8.3. VEET as an example of a support system promoting modern energy

efficiency solutions

The Australian system called Victorian Energy Efficiency Target (VEET), described in the

Economic Report, can serve as an example of a system that helps the regulator actively

model the directions of support, and thus support state-of-the-art solutions and additional

benefits that do not have direct impact on energy conservation. Analogically to the system of

energy efficiency certificates, this system is based on the obligation imposed upon suppliers

to redeem certain quantity of Victorian Energy Efficiency Certificates (VEECs), but there is a

difference in the way the certificates are granted. According to the regulations underlying

VEET, eligible entities can create VEECs when they help energy users carry out selected

projects aimed at energy efficiency improvements. Thanks to the revenues obtained from

VEEC sales, eligible entities are able to offer special benefits which can reduce the cost of

efficiency projects. In the model, some devices used for efficiency improvements have been

put in a register and they can be used in VEET without additional conditions, whereas the

remaining efficiency projects require prior approval from the body in charge of system

management.

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An equivalent of VEET can be created in the Polish legal system either by means of a new

support mechanism (a separate type of certificate), or by modifying the system of white

certificates. Under that mechanism, a portion of white certificates available (e.g., 20%) would

be granted to the entities which provide users with devices or services aiming at energy

efficiency improvements and approved by the President of ERO. It should be remarked that

such a process - apart from support for HAN development – would indirectly enable its

standardization.

3.8.4. Energy Efficiency Law – role model obligation of the public sector

Role model obligation imposed on public sector units, prescribed in Energy Efficiency Law, is

a provision that may exert positive impact on the development of Smart Grids in a broad

meaning of the term, including intelligent solutions inside public buildings. Pursuant to Article

10 of Energy Efficiency Law, public sector units, while performing their tasks, apply at least

two of the five listed energy efficiency improvement measures including, among other things,

an agreement involving execution and financing of energy efficiency improvement project,

purchase of a new piece of equipment, installation or vehicle (or replacement of an old piece

of equipment, installation or vehicle) characterized by low energy consumption and low

operating costs. If public sector units take steps towards ensuring compliance with the law,

installation of energy management systems, structurally similar to HAN, can be one of the

measures. With increasing demand for HAN devices in public institutions, those devices

should become more and more popular and unit costs should go down. Moreover, pursuant

to Article 11 of Energy Efficiency Law, the ministers competent for economy, transport and

construction, spatial and housing development, are required to organize campaigns

promoting the application of energy efficiency improvement measures, including the

introduction of innovative technologies and implementation of information, education and

training efforts with regard to available energy efficiency improvement measures.

Role model function of the public sector can be further enhanced in connection with the draft

RES law, which prescribes that public institutions are required to utilize RES equipment or

technologies for passive buildings with low or zero energy consumption. In that context, one

should also expect more obligations of public sector units if the new energy efficiency

directive is adopted.

3.8.5. Energy efficiency in buildings

In the private sector, the main pillar for energy efficiency improvement is the obligation

concerning the provision of energy consumption information. The provisions of Construction

Law include an obligation to have energy performance certificates drafted for buildings. Yet,

the implementing regulation specifying the methodology for calculating such performance

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parameters108, according to methodology presented in the attachment to the regulation, takes

into account automatic energy management systems only to a limited extent. From the

standpoint of that methodology, potential shift in energy peak demand resulting from HAN

application is insignificant. Furthermore, actual energy savings may not be reflected in

energy performance parameters of the building109. Under such circumstances, energy

performance certificates of the buildings may not reflect actual reduction in energy demand

achieved thanks to the application of HAN technology.

3.8.6. Direct financing methods: subsidies and earmarked loans from the

National Fund for Environmental Protection and Water Management

(NFOŚiGW)

Directive 2006/32/EC, as well as Directive 2010/31/EU, explicitly allow Member States to create funds to subsidize the implementation of energy efficiency improvement programs and other energy efficiency improvement measures, and to promote improved metering techniques with the use of meters. Polish legal system can introduce additional mechanisms for financing Smart Grids and HAN.

In practical terms, a whole variety of measures aiming at financing energy efficiency improvements has been applied, such as direct funding through subsidies110 or low-interest loans111.

Financing environmental investments is a task bestowed upon the National Fund for Environmental Protection and Water Management (NFOŚiGW.) In the context of financing energy efficiency projects, the role of the Fund is now of primary importance, and from the standpoint of the subject matter of the Report, Fund activity can also be regarded as especially meaningful. First and foremost, it must be stated that supporting HAN belongs to the objectives pursued by the Fund. As specified in Article 400a of Environmental Protection Law112, financing of environmental protection and water management by the Fund includes, inter alia:

Supporting the utilization of local renewable energy sources and introduction of more environment-friendly energy carriers,

Development and implementation of new methods and technologies in scope of environmental protection and water management, and in particular those connected with emissions abatement and water consumption reduction, as well as efficient use of fuels,

108

Regulation of the Minister of Infrastructure of November 6, 2008, on the methodology of energy

performance calculations in buildings, apartments, and parts of buildings that constitute separate

technical and functional areas, and on the manner of preparation and a template of their energy

performance certificates (Journal of Laws, No 201, item 1240, with further amendments.) 109

In particular when performance is calculated on the basis of average values rather than actual

energy consumption. 110

City of Houston - Energy Efficiency Incentive Program http://www.houstongoc.org/?q=node/47 111

E.g. Texas LoanSTAR http://seco.cpa.state.tx.us/funding/nolfa/ 112

Environmental Protection Law of April 27, 2001(Consolidated text: Journal of Laws of 2008, No 25, item 150, with further amendments), hereinafter: Environmental Protection Law.

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Expenses on the purchase, maintenance, servicing and protection of specialized equipment and technical devices used for the execution of environmental protection and water management tasks,

Co-funding of investment projects, operating costs and activities executed with the use of non-refundable resources from the European Union,

Co-funding of environmental protection and water management projects carried out on the principles specified in Public-Private Partnership Law113,

Other tasks supporting environmental protection and water management resulting from the principle of sustainable development and environmental policy of the state.

Furthermore, in Article 401 c., paragraph 5 of Environmental Protection Law, it is specified that the revenues of the Fund in respect of substitution fee paid for non-compliance with the obligation concerning the redemption of RES or cogeneration certificates of origin, or energy efficiency certificates, can be allocated only and exclusively to the support for energy efficiency improvements, including highly efficient cogeneration, or support for the development of renewable energy sources and construction or reconstruction of the networks to connect those sources.

As stated in the position of the Fund, supporting energy efficiency is among its priorities114, and policy of the Fund in that area should be rated very highly. This is further acknowledged by a priority scheme adopted by the Fund, entitled „Smart Grids” (Inteligentne Sieci Energetyczne/ISE): under that scheme, the amount of PLN 340 million will be allocated to Smart Grids115. In the context of activity of the Fund, which in certain areas intersects with the activity of energy regulator, one could consider the possibility of statutory regulation of the status quo and prescribing legislative principles for the collaboration of the two bodies in the area of energy sector. Such collaboration is justified in terms of finances of regulated enterprises (the President of ERO rewards investments in the the tariffs, the National Fund for Environmental Protection and Water Management allocates funds under contest procedures), knowledge exchange and effective execution of tasks bestowed upon both bodies. Given present-day legislative framework, and taking practical aspects into account, the forms of financial support provided by the Fund may play an important role in HAN development.

113

Public-Private Partnership Law of December 19, 2008 (Journal of Laws of 2009, No 19, item 100,

with further amendments.) 114

NFOŚiGW na rzecz efektywności energetycznej [NFOŚiGW for energy efficiency], available from: http://www.nfosigw.gov.pl 115

http://www.nfosigw.gov.pl/o-nfosigw/aktualnosci/art,361,inteligentne-sieci-energetyczne-nowy-

obszar-dzialania-nfosigw-.html

3.8.7. Tax reliefs and exemptions

Tax reliefs and exemptions applicable to environmental activities are a commonly accepted

practice. Such measures include a wide range of exemptions or reliefs, starting from property

tax reduction116, through income tax exemptions117, through 3-day tax holiday in respect of

sales tax for energy efficiency appliances118. Under Polish legal doctrine, there is a distinction

between tax reliefs and tax exemptions; in the case of HAN devices, support mechanisms

can be based on tax reliefs aimed, in principle, at reducing tax burden rather than a definitive

(final) exclusion of a certain category of subjects or objects from taxation, as applicable in the

case of tax exemption119. In the Tax Ordinance Law, tax reliefs are defined as: exemptions,

deductions, reductions or abatements prescribed in tax law, the application of which results

in reduced tax base or tax amount, with the exception of reduction of the amount of the tax

due by the amount of the tax calculated, in the meaning of the provisions concerning value

added tax, and other deductions included in the structure of that tax120. The proposal

presented in RES draft law involving a reduction of income tax base calculation by the

expenditures incurred by the taxpayer in connection with the purchase or assembly of RES

micro-installation should be highlighted as a step in the right direction. As far as subjective,

objective, or mixed tax exemptions are concerned, their application is possible (and, in fact, it

does take place) with regard to energy from renewable sources, for example.

Among the reliefs set forth in Polish tax law, it is theoretically possible (provided that relevant

changes are made in the law) to include HAN devices in the catalog of the following tax

reliefs:

Deductions in income tax base (Article 26, paragraph 1, Personal Income Tax Law121,

or Article 18, paragraph 1, Corporate Income Tax Law122),

Reduction of income tax amount (Article 27f, Personal Income Tax Law),

Property tax exemption (Article 7, Law on Local Taxes and Levies123.)

For this reason, it is recommended that tax reliefs are introduced, first and foremost, in the

area of income tax or property tax. Such reliefs should include the possibility of deducting

from taxable base the expenditures incurred by the taxpayer in connection with the purchase

or assembly of HAN devices. Another option is the introduction of general reliefs in respect of

energy efficiency expenditures. In view of current tax policy, we acknowledge that the

application of such a solution is rather unlikely. It should also be emphasized that relief

116

City of Houston - Property Tax Abatement for Green Buildings http://www.houstontx.gov/finance/ecodev/index.html 117

Solar and Wind Energy Device Franchise Tax Deduction http://www.dsireusa.org/incentives/allsummaries.cfm?State=TX&&re=1&ee=1 118

Memorial Day Weekend Sales Tax Holiday for Energy-Efficient Products http://www.window.state.tx.us/taxinfo/taxpubs/tx96_1331 119

A. Gomułowicz, J. Małecki, Podatki i prawo podatkowe [Taxes and tax law], Poznań 2000, p. 93. 120

Goods and Services Tax Law of August 29, 1997 (Consolidated text: Journal of Laws of 2005, No 8, item 60, with further amendments.) 121

Personal Income Tax Law of July 26, 1991 (Consolidated text: Journal of Laws of 2010, No 51,

item 307, with further amendments.) 122

Corporate Income Tax Law of February 15, 1992 (Consolidated text: Journal of Laws of 2011, No

74, item 397, with further amendments.) 123

The Act of January 12, 1991, on local taxes and levies (Consolidated text: Journal of Laws of 2010,

No 95, item 613, with further amendments.)

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option would not pertain to harmonized taxes. In the case of goods and services associated

with energy efficiency, it is not possible to apply reliefs in the area of excise tax124, and

according to Directive 2006/112/EC, VAT exemption or a reduced rate of VAT cannot be

applied for goods or services associated with energy efficiency125.

Application of tax reliefs may first of all be associated with the issues related to defining the

scope of the relief. In practice, it might turn out to be cumbersome to distinguish the devices

focused on energy efficiency from other devices. In particular, this would relate to the scope

of tax exemption for hybrid devices. If a device related exclusively to energy efficiency126 was

entirely covered by the exemption, and a device that performs the same function and a

number of other functions as well127 would be subject to full taxation, there might be market

disturbances. On the other hand, if hybrid devices were entirely covered by the exemption,

this would contribute to the development of all kinds of devices enabling energy

management, but at the same time a significant portion of the amount of taxes not collected

by the state would not support energy efficiency. Due to those factors, the mechanism of tax

reliefs would have to be linked in practice with certain conditions to be met – for instance,

reliefs would be related to expenditures on HAN devices concurrently supported under the

scheme of certificates of origin.

User exemption from tax burden in respect of the revenues from the services or electricity

generated within HAN will be as important as the reliefs connected with the expenditures

incurred by the user in connection with the deployment of HAN installation. As regards

electricity, there is an issue of excise tax settlements in respect of electricity consumption by

active users. Even though pursuant to Article 30, paragraph 1 of Excise Tax Law128, there is

an exemption for energy from RES, such an exemption is granted upon receipt of a

document confirming the redemption of a certificate of energy origin, in the meaning of

Energy Law provisions. In consequence, the value of the exemption is included in the value

of the certificate sold by the generator. This may mean that the requirement to meet the

obligations connected with excise tax payment will discourage some potential active users.

Excise tax will always be applicable to the generators of electricity from fuels other than

renewable fuels. In this context, it should be pointed out that European law provisions do not

preclude modification of Excise Tax Law in the case of energy generation by active users.

According to Article 21, paragraph 5, Directive 2003/96/EC, Member States may grant an

exemption to small generators of electricity, provided that they tax energy products used for

such electricity production129.

124

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the

taxation of energy products and electricity (Official Journal of the European Union, L 283 of

27.11.2003, p. 51.)

125 Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (Official

Journal of the European Union L.06.347.1.) 126

E.g., the plugs referred to in Section 3 d) in the Technological Report. 127

E.g., Full Smart Grid appliances referred to in Section 3 d) of the Technological Report. 128

Excise Tax Law of December 6, 2008 (Consolidated text: Journal of Laws of 2011, No 108, item

626.) 129

Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the

taxation of energy products and electricity (Official Journal of the European Union, L 283 of

27.11.2003, p. 51.)

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Income tax exemption for natural persons in respect of provision of DSM services or supply

of electricity to the grid, provided that it does not exceed the volume of electricity collected

from the grid, might be another factor that could help overcome the barriers for the

development of distributed energy sources. Greater prevalence of active user model can be

promoted by the mechanisms involving not only financial support, but also minimizing the

obligations on the side of the active user who is not an entrepreneur. Potential income tax

burden on the active user should be applicable only in a situation when the user actually

receives money from energy company for the services provided, and not in the case when

the user only reduced the cost of energy by subtracting due compensation for the energy

supplied130.

3.9. Summary in scope of national legislation

HAN, as an individual energy efficiency measure, can be developed and utilized

pursuant to existing regulations. Having said that, HAN will not be able to perform the

function supporting the management of distributed energy sources in the national

power system;

HAN operating as a component of the power grid can be applied, provided that the

draft energy law is adopted and Smart Grid system is deployed. It is imperative to

remove the barriers for information exchange between independent measurement

operator and HAN provider;

To enable full utilization of HAN, barriers hampering the application of demand side

management mechanisms must be removed; in particular, dynamic tariffs, distributed

generation and sale of energy stored by the users need to be allowed;

HAN deployment can take place only upon user’s consent, either the user

himself/herself or HAN provider should be responsible for deployment. According to

this model, DSO would be the owner of the smart meter. HAN would be the property

of the user or another person who co-financed HAN components, in accordance with

the wording of the agreement between that person and the user;

In view of user’s consent for the processing of user’s measurement data, the risk of

privacy violation by the mere fact of measurement data collection is kept to a

minimum. With the purpose of safeguard measurement data, the introduction of

measurement secrecy should be taken into account;

HAN service provider should remain, in principle, an entity not regulated under

Energy Law, but it is recommended that the provisions aimed to protect the user are

put in place.

Adv. Mariusz Swora, Ph.D.

Cooperation: Jacek Zimmer – Czekaj

130

This will be applicable to natural persons who do not run a business, for whom the cost of electricity

will not be a tax deductible cost.

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Attachment – summary of required and recommended changes in the

legal system

Purpose of the change Regulations subject to

change

Scope of change

AMI system deployment. Energy Law (the draft) Adoption of proposed solutions

with the requirement of AMI

meters installation by DSOs.

AMI system deployment.

Specifying the share of

DSOs in HAN deployment.

Energy Law (the draft),

future implementing

regulation concerning AMI

meters (provided for in

Energy Law draft.)

Indicating that DSO is only

responsible for communication

between AMI meter and home

gateway.

Potentially, possibility of home

gateway co-funding by the DSO.

AMI system deployment.

Ensuring interoperability of

HAN.

Energy Law (the draft),

future implementing

regulation concerning AMI

meters (provided for in

Energy Law draft.)

Defining HAN – AMI meter

communication standards.

AMI system deployment.

Ensuring cooperation

between HAN and MIO.

Energy Law (the draft),

future implementing

regulation concerning MIO

(provided for in Energy Law

draft.)

Making sure that HAN service

providers can obtain

measurement data directly from

MIO. The data will be acquired

mostly for comparisons, but it

will not be useful for the purpose

of receiver management due to

different granularity.

Specifying user authentication

mechanism.

Removing barriers for

utilization of distributed

energy sources.

Inroducing the principles

governing DSM and DSR

service provision.

Energy Law (the draft),

future system regulation

and tariff regulation.

Defining the rules for DSM and

DSR service regulation.

Removing barriers for

utilization of distributed

energy sources (RES).

Introducing innovative

Energy Law (the draft),

future tariff regulation.

Exemption from tariff approval

requirement in the case of sales

of energy.

Operators allowed to use – upon

user’s consent – other tariffs

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tariffs. than the approved ones.

Removing barriers for RES

utilization.

Reinforcing demand for

energy from distributed

sources.

Energy Law (the draft),

future system regulation.

Energy from RES can be

purchased for the purposes

connected with ancillary

services.

DSO can provide ancillary

services within separated

balancing areas.

Requirement to purchase

energy from RES for operator’s

needs.

Removing barriers for RES

utilization.

Introducing energy storage

regulation.

Energy Law (the draft),

future system regulation.

Introducing solutions for active

users who only periodically give

more energy to the grid than

they consume.

Removing barriers for RES

utilization.

Reducing barriers

associated with connecting

micro-generators.

Energy Law (the draft),

future system regulation.

Exemption from the cost of

meter installation, provided for in

draft RES law, extended to

include micro-generation

equipment.

Removing barriers for RES

utilization.

Removing tax barriers.

Excise Tax Law. Energy used for user’s own

purposes and generated in

sources of total capacity below

200 kW, for example, exempt

from excise duty.

Protection of HAN and

DSR service users.

Energy Law (the draft),

future system regulation.

Implementing maximum fees or

sanctions for termination of HAN

agreement or non-compliance

with DSM requirements by the

user.

Protection of user privacy.

Adoption of measurement

secrecy.

Energy Law (the draft). Introducing secrecy of

measurement information

collected by the TSO or DSOs

and, potentially, by HAN service

providers.

Reinforcing the role of HAN

as energy efficiency

improvement measure.

Construction Law (in terms

of energy performance

certificates for buildings.)

Taking into account the impact

of HAN (in particular, shifting of

the peak demand) on the

assessment of energy

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P a g e | 59

performance of devices and

buildings.

Financing Smart Grid

deployment by DSOs.

Energy Law (the draft),

future tariff regulation.

Introducing a new regulatory

model or mechanisms whereby

the regulator and the operator

agree on Smart Grid

investments.

Financial support for

Smart Grid deployment

within the framework of

certificate system.

Energy Efficiency Law /

possibly a new system in

the Energy Law.

Introducing a mechanism of key

projects, approved by the

President of ERO, which can be

rewarded with certificates.

Financial support for

Smart Grid deployment

within the framework of

National Fund for

Environmental Protection

and Water Management

(NFOŚiGW.)

Environmental Protection

Law.

Implementing a mechanism of

joint decision taking or

consultations with the President

of ERO as regards the allocation

of resources from substitution

fees.

Financial support for the

Smart Grid – tax reliefs.

Personal Income Tax Law

and Corporate Income Tax

Law.

Implementing tax reliefs or

exemptions for expenses

incurred in connection with HAN.

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