Why Europe needs to invest in grids without delay?

There are many reasons why Europe needs to focus on its power grid.

The first one is that half a billion consumers are relying on a secure supply of electricity in their daily lives and for their economic activities. The power grid developed over the last century needs to be refurbished and also accommodate for new technologies, new ways of generating and consuming electricity.

Customers have an added influence in today’s power system. They become producers and are in need of new services. The EU grid needs to further smarten to respond to these.

Energy costs are a concern for Europeans and European businesses. Developing the grid will help increase power exchanges across countries, allow new players to step in and pressure prices down.

Last but not least, to reduce its carbon footprint, Europe’s needs to adapt its power system to rely more and more on electricity generated from renewable sources and be more energy efficient.

The overarching goal is to prepare the infrastructure for a close to zero emission power system by 2050. A system that is smart, cost-efficient and future proof.

It takes on average ten to fifteen years to build a transmission line from the scoping of the project, its mapping, environmental reviews, public consultations, permitting and the actual building of the line. This is why action is needed now to deliver in the next 15 years and beyond.

The four levies for giving infrastructure a push.

ENTSO-E has been monitoring the advancement of projects included in the 10-year network development plans. From one edition to the other, the finding is the same: around one third of projects are delayed mainly due to permitting issues.

To give the infrastructure a push one needs to:

1. accelerate permit granting

2. improve regulatory treatment

3. ensure access to financing

4. communicate to the public and authorities including in local communities the benefits that they will get from the project

Why the EU regulation on trans-European network helps?

The so-called TEN-E regulation is a real must that concretely supports project being built as it acts on all levies.

1. It incentives member states to streamline and simplify their permitting procedures for PCIs

2. It allows PCIs to benefit from fast-track treatment by national administration

3. It foresees grants

4. And, gives to promoters obligations in terms of communication and engagement with the public

For all these reasons the TEN-E is helping Europe meeting its infrastructure challenge but to leverage its full potential, focus now needs to be on implementation in the member states. Regulation 347/2013 on Trans-European infrastructure needs to be fully implemented.

Over its three years of existence the regulation as allowed more than 100 projects of electricity transmission and storage to benefit from the PCI label and thus giving the EU power grid a push.

Deep diving into the TEN-E regulation

Accelerated Permit granting - Regime of common interest

Priority status of projects of common interest

To ensure efficient administrative processing the most rapid treatment legally possible is given to PCI labelled projects.

The status of the highest national significance possible according to national law is given for example in spatial planning and environmental assessment.

The Commission supports Member states with non-binding guidance on how to streamline the environmental assessment procedures in defining adequate legislative and non-legislative measures on how to ensure the coherent application of environmental assessment procedures required under European Union law. According to a recent report commissioned by the European Commission¹, even though, in the majority of the member states, the status of highest importance exists for the PCI labelled projects, not all member states apply the status correctly.

Organisation of the permit granting process

The obligation of Member States to designate one national competent authority as a sole point of contact the so-called “one-stop-shop” for project promoters eases the whole permit granting process. The competent national authority in charge of managing the process and coordinating the submission of all relevant documents and information at national level including the reporting towards the commission increases transparency and reduces the administrative burden of project promoters. According to a recent report commissioned by the European Commission¹, even though member states have by now established a “one-stop-shop”, in practice, in many cases, these offices have not been given sufficient powers to perform their duties.

The actions to facilitate the issuing of a comprehensive decision should be harmonized according to predefined scheme.

The permit granting process consists of two clear defined procedures with precise deadlines: the pre-application procedure and the statutory permit granting procedure. The maximal combined duration of the two procedures not exceeding a period of three years and six months gives an unambiguous push.

According to the ACER Monitoring report of 2015² on the progress of electricity and gas projects of common interest, the main reason (58%) for delays reported by project promoters were related to permitting issues due to environmental issues, including re-routing, and/or siting or re-siting of substations.

Fig: Main reasons for delay for all PCIs³

In addition project promoters indicated as the main permitting reason for delays national law changes affecting permitting, including complexities with the implementation of regulation (EU) 347/2013.

Unfortunately only a small amount of PCI projects currently started a permit granting process according to the new procedures and thus not all benefits of this legislative measure could be evaluated at present.

For 36 projects out of 128 reported projects in the Acer Monitoring report 2015 the new permitting granting process according chapter III of Regulation (EU) N° 347/2013 did not apply.

Manual of procedures

The Energy Infrastructure Regulation requires member states to publish a manual of procedures for the permit granting process applicable to PCIs (Article 9 paragraph 1). According to a recent report commissioned by the European Commission, all member states published the manuals but no manual was fully compliant with the requirements¹.

Improved Regulatory treatment

Energy system wide cost-benefit analysis

A harmonised energy system wide “cost benefit analysis (CBA)” Methodology has been submitted to Member states, the Commission and the Agency after an extensive consultation process involving all relevant stakeholders is a major achievement of the regulation. Assessments applied to all TSO and 3^rd^ parties projects included in the TYNPD allow a treatment at equal footing of all projects.

Enabling investments with cross-border impacts

Investment costs of projects of common interest should be borne by the relevant TSO or project promoters to which the project provides a net positive impact. The cost benefit analysis is a very useful tool to evaluate investment proposals to ensure society benefits from them. Investments and cost allocation should be based on an agreement of the project promoters and their NRAs and if needed a NRA joint decision. Only in case of disagreement an ACER decision might be required. The regulation empowers ACER in case of disagreement to provide a decision and fosters a faster decision making process.

Notwithstanding the aforementioned benefits of a harmonized energy system wide cost and benefit analysis, the cross border cost allocation following the cost and benefit analysis is used to decide whether or not to support useful investments with EU funding. This link is unfortunate and may prevent Member States to push for cross border projects due to uncertainty of the impact of these projects on national tariffs. The regulation should not stop at the CBCA, but also ensure that project promoters will be compensated for any costs arising from CBCA.

The current proposal on CBCA application and the possibility for project promoters to request financial contribution from benefiting Member states reduces trust among projects promoters, national TSOs, national regulators and Member States as non-hosting Member States could also be impacted. The rules to apply a cross border cost allocation should be further improved and simplified to accelerate investment in cross border infrastructure.

Incentives

Projects of pan-European relevance with a cross border impact often incur higher risks for the development, construction, operation or maintenance. The regulation requires appropriate incentives compared to risk normally incurred by comparable infrastructure projects. These incentives have been taken into account for cross border projects by many national regulators. Nevertheless not all additional costs, beside inherent higher project risks incurred by projects promoters, are duly taken into account. Additional research and development costs for developing alternative technical solutions or additional routes layout to be considered may be quoted as example. It should be noted that those incentives are not implemented in all EU countries.

Financial support

What money are we talking about?

The European Commission estimates that €200 billion have to be invested in electricity and gas transmission infrastructure by 2020.

ENTSO-E’s TYNDP 2016 identifies the need for up to €150 billion investment in electricity infrastructure only, of which 70-80 billion for mid-term and long-term projects (committed in national plans and to be commissioned by 2030).

In its Progress Monitoring Report² ACER estimates the investment costs for electricity transmission Projects of Common Interest (PCIs) reported by project promoters to reach €49.3 billion.

All these figures show that the investment need is really important. To attract investors, one needs above a stable regulatory framework on the financing of infrastructure and in particular for cross-border infrastructure.⁴

Eligible for Union financial assistance in the form of grants for studies, financial instruments and under specific conditions in the form of grants for works.

The European CEF⁵-Fund amounts a total of 5,35 BEUR to support projects of common interest for electricity and gas. As reported in the CEF Energy lists of actions selected for receiving financial assistance under the first and second call for 2015, a total of 17,2 MEUR were granted for studies and 57,86 MEUR for works in electricity projects.

Fig: Main achievements of regulation (EU) 347/2013

The first PCI list published in October 2013 identified 248 projects of common interest in electricity, gas, oil and smart grids, of which 132 electricity transmission & storage projects.

The second PCI list published in November 2015 identified 195 project of common interest in electricity, gas, oil and smart grids, of which 108 Electricity transmission & storage (27 electricity highways) projects.

Electrification of transport, heating and cooling, the need to develop storage to address variable generation, develop the interface between the transmission and distribution systems explain why the majority of PCIs fall in the electricity transmission and storage category.

Regulation 347/2013 is thus a powerful instrument but to leverage all its potential its full implementation by all member states is paramount.

Transparency and public participation

In order to guarantee transparency and public participation a manual of procedures for the permit granting process is made publicly available.³

Project promoters have to draw up and submit a concept for public participation including at least one public consultation before the final application.

Information related to the project shall be established and regularly updated on the promoter’s website.

It’s key to foster a better understanding of why’s and how’s of projects and to get support the projects at all level. Projects often face opposition from local citizens and lack of support by local politicians. On one hand projects are needed to address the needs of the required grid in line with the energy transition goals at pan-European level on the other hand local benefits are not always identified appropriately. If energy and climate objectives are to be achieved, it is of utmost importance to get political support on all levels.

A regional political cooperation including members states, regulators and promoters as well as NGOs could help to support the implementation of needed projects.

All the transparency and public participation measures are aiming to gain public acceptance. Proper stakeholder engagement goes beyond what TEN-E regulation prescribes and should be adapted to the concrete context of the project. However, it has to be recognised that in-depth information is important, but not sufficient to gain public acceptance at local level. Stakeholders often request (costly) project changes (i.e. cabling, longer routes, compensation measures) which are understandable, but often lead to problems to cover the additional costs.

Additional key issues for project promoters?

PCI selection process launched every two years

The regulation requires a new list to be established every two years. Existing projects of common interest are subject to the same selection process as new proposed projects and may lose their “priority” status during their implementation phase. PCI granted projects could eventually lose further financial support granted by the European CEF fund or access to financial instruments granted by the EIB. The risk to be potentially excluded every two years from the PCI list could hamper the implementation of these needed investments. The potential impact of this requirement should be further analysed.

Administrative burden for projects promoters

PCI labelled projects can benefit from different forms of support but also have obligations that possibly could refrain project promoters to apply for a PCI status. Many PCI labelled project promoters complain about the additional administrative burden in addition to all the project specific administrative work that has to be done anyway. Many project promoters estimate that the real possible benefits of the regulation are low compared to the additional work they may face.

Conclusion

Regulation (EU) 347/2013 addresses the main needs of projects promoters to implement projects of pan-European significance of common interest and is of real help for project promoters, national regulators and Member states. Obligations of all the stakeholders are clearly defined.

The regulation is a powerful tool to help project promoters but has not shown all its full potential as all the legislative measures are not yet fully implemented.

The full implementation of Regulation (EU) 347/2013 is of utmost importance.

Connecting Europe Facility, the European Bank of Investment and other funds are ready to support project promoters.

Clarification on the cross border cost allocation principles is needed to gain confidence between all the stakeholders.

A general lesson learned is that stability of decisions processes supports the realisation of projects. Especially projects that are in the permitting or even construction phase should not be reassessed so that no additional risks come up are in the permitting process. The impact of the process selection for existing projects of common interest process every two years should be further analysed.

In addition it has to be recognized that gaining public acceptance is very challenging and needs – further to early and comprehensive stakeholder engagement – a regulatory acceptance of additional costs that result in adapting projects to the stakeholders needs. Addressing this topic and finding a practical solution would be beneficial to project implementation.

Energy transition requires grid, grid requires everyone’s support. Political support is needed on all levels. Regional political cooperation should be reinforced.