(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Oct 18 A European Union strategy to
expand power transmission across borders and seas requires
closer coordination of operators and regulators to mobilise
More cross-border transmission is important to balance
intermittent renewable energy, narrow national price differences
and improve market resilience through pooled liquidity and
Historically regulators have struggled to coordinate
cross-border transmission projects and faced planning hurdles
and a funding squeeze.
Now the EU has a strategy for upgrading and developing
transmission which targets priority routes for grant funding and
The European Network of Transmission System Operators
(ENTSO) estimates that the strategy will require the grid to
grow by 4,000 km a year.
The total required investment is about 104 billion euros
($136.46 billion) from 2012-2022, according to the European
Meeting the goal will also need a massive ramp-up in
organisation, where at present there are no EU-wide rules for
how much regulators should pay investors, while grid operators
have no obligation to cooperate to build the required
The EU's four priority zones are: a "northern seas" grid
linking offshore wind farms; north-south connections in western
Europe; similar connections in eastern and southeast Europe; and
a Baltic energy grid linking countries including Finland,
Lithuania, Sweden and Poland.
Fine-tuning these, the Commission lists a non-exhaustive
list of 24 large, new and upgraded interconnection routes as
potential "projects of common interest" (PCIs), which it is easy
to see swamping member state resources.
Earlier this year it estimated the greatest funding gap was
in eastern/southeastern Europe, which was short of about 12
billion euros, followed by the offshore wind grid (8 billion
euros), western Europe (5 billion euros), and then the Baltic
zone (3 billion euros).
The Commission has now introduced a Connecting Europe
Facility to help plug those gaps, allocating 9.1 billion euros
for energy infrastructure to co-fund alongside private investors
The attraction of priority status has spurred 283
applications to be considered as electricity PCIs, with most
(151) in the under-supplied eastern and south-eastern Europe,
the Commission reported in July.
However, the funds are limited, planning hurdles remain, as
well as a lack of coordination of regulators and operators.
The present organisation of the network allows for publicly
or privately funded interconnectors, referred to as regulated
To date most have followed a regulated approach, given the
high upfront capital and doubts over long-term returns which
depend on uncertain cross-border price arbitrage over decades.
Under its new plan for priority routes, the European
Commission obliges national grid operators to provide developers
with an income the costs of which is passed on to energy
consumers and which assures investors of "appropriate
But there is no definition of "appropriate."
The EU's Agency for the Cooperation of Energy Regulators
(ACER) is meant to ensure consistency, but in its latest "2013
Work Programme" it lists "rules regarding harmonised
transmission tariff structures" as a priority for next year.
The ACER programme makes a deadline to make recommendations
on tariffs by December 2013, but describes "No activity yet" and
assigns two staff.
More urgency is needed to clarify rules for investors, who
can be enticed by rather low but predictable long-term returns.
In Britain, for example, the operator National Grid has
successfully designed a competitive tendering process for the
ownership of national offshore wind transmission assets.
In a hybrid regulated-merchant approach, third party private
sector companies are invited to bid for a regulated income.
The winner gets an "allowed revenue", ultimately passed to
consumer fuel bills, which is based on the amount needed to
cover the capital, operating and maintenance costs of the
The National Grid calculates the allowed income on a 9
percent annual return on investment, and that has attracted
investors including a consortium comprising Macquarie Capital
Group Limited, Barclays Infrastructure Funds Management Limited,
Mitsubishi Corporation and Frontier Power Limited, in
the latest tender for the London Array offshore wind
In addition to clearer pan-EU rules for investors,
cross-border arrangements are needed to drive cooperation.
The energy consultancy Redpoint reports that concrete
interconnector plans are focused on north and western Europe,
and especially France, the UK and Ireland whose regulators
("FUI") have cooperated closely.
But there are no rules requiring cooperation of energy
regulators or grid operators.
The EU's 2009 electricity directive simply makes operators
responsible for "providing the operator of any other system with
which its system is interconnected with sufficient information
to ensure the secure and efficient operation."
That is a pointed difference with the gas directive which,
by contrast, states: "Each transmission system operator shall
build sufficient cross-border capacity to integrate European
Electricity transmission is just one of many massive energy
projects facing the EU, also including gas pipeline projects and
renewable energy, just as it wallows in the centre of a
continuing global economic slowdown.
Funding is not the only delivery problem, where it will take
a huge task in organisation to make its strategy clear to
($1 = 0.7621 euros)
(Reporting by Gerard Wynn)