Risk may lead project promoters or investors to refrain from investing or to delay their investment decisions in energy infrastructure projects. Regulation (EU) 2022/869 foresees additional incentives for Projects of Common Interest (‘PCI’) in the categories of electricity transmission, electricity storage, smart electricity grids, smart gas grids and hydrogen infrastructure, if the project promoter faces higher risks.

National Regulatory Authorities (NRAs) and Member States play an important role in providing the appropriate incentives to facilitate these investments.

ACER facilitates the sharing of good practices among NRAs.

ACER's (2014) Recommendation on incentives for projects of common interest and on a common methodology for risk evaluation:

• establishes an incentives framework for PCIs promoters who are incurring high risks;
• recommends to NRAs to follow a 7-step common risk evaluation methodology.

ACER highlights the importance of considering project-specific risk-based incentive schemes in conjunction with the risk and reward balance that is offered to project promoters through national regulatory frameworks.       

The ACER’s Report on investment evaluation, risk assessment and regulatory incentives for energy network projects takes into account the methodologies and the criteria used by NRAs to evaluate investments in energy infrastructure projects and the higher risks associated with them. ACER also reviewed the national regulatory frameworks in terms of risk mitigation methods and regulatory incentives for the network operators. The ACER’s Report focuses on regulated electricity transmission projects.

ACER’s findings regarding electricity infrastructure show that:

• The national regulatory frameworks rarely differentiate in their regulatory treatment of specific project features such as high capital expenditure, interconnection or offshore investments;
• TSOs’ risks are generally covered/mitigated by the default risk mitigation measures within the national regulatory framework, while the measures differ across Member States;
• Project promoters have rarely requested additional incentives due to higher risk during the past decade.

ACER concludes that:

• The current national regulatory frameworks are generally effective in mitigating risk, and the need for additional project-specific incentive has so far been limited while this may change in the future.
• The current risk mitigation approach does not guarantee that the most beneficial and cost-efficient investments are put forward by project promoters, because the regulatory frameworks treat all projects alike. Therefore, the focus on how to improve the incentives framework should be on prioritising the identification of more cost-efficient, but currently 'missing' solutions/projects.

In order to assist NRAs, ACER provides several recommendations regarding:

• The evaluation of investment needs and the assessment of individual investments;
• The evaluation of project promoters’ risks and the provision of risk-based incentives;
• Fair risk/revenue balance, benefit-based incentives and related indicators to foster development of efficient networks.

In 2023, ACER has commissioned a consultancy work on benefit-based incentive regulation to promote efficiency in addressing system needs and to overcome the CAPEX bias.

A first report published by ACER presents the main principles of benefit sharing, provides an overview of the experience of different European countries in this area and outlines a proposal for an incentive-based regulatory scheme.

The Regulation on guidelines for trans-European energy infrastructure (‘TEN-E Regulation’) was first introduced in 2013 to facilitate the development of the European energy networks. The Regulation was revised in 2022 to provide a legislative framework fit to address the goals set by the European Green Deal.

The Regulation introduces the concept of projects of common interest (PCIs) and projects of mutual interest (PMI). These are key infrastructure projects with cross-border impact that significantly enhance the links among the energy systems of EU countries (and third-party countries in the case of PMIs) and benefit from accelerated permitting procedures and funding as they are identified as key contributors to achieving the EU’s energy and climate objectives.

In order for a project to be selected as a PCI, it must:

• be necessary for one of the priority corridors (trans-European energy infrastructure at specific geographical areas) set in the TEN-E Regulation;

• be a cross-border interconnector or have a significant impact on EU countries; and

• bring important benefits to sustainability, market integration, and EU’s energy security of supply which outweigh its costs.

In order for a project to be selected as a PMI, it must:

• be located on the territory of at least one EU country and on the territory of at least one third country;

• contribute to increase Europe’s sustainability, market integration, and energy security of supply; and

• impact a third country in deploying its energy transition.

The selection criteria are set out by in TEN-E Regulation and their assessment is based on the data and the analyses outlined in the Ten-Year Network Development Plans (TYNDP), which are provided by ENTSO-E and ENTSOG.

Under the TEN-E Regulation, ACER:

• provides inputs to the regional groups during the assessment of candidate projects, in coordination with National Regulatory Authorities (NRAs) and

• assesses the draft regional lists and provides an Opinion on whether the selection criteria and the cost-benefit analysis (CBA) have been applied consistently across regions.

ACER has released its Opinions on each of the Commission’s biennial Regional PCI lists since their establishment in 2013: one on the proposed gas PCIs and one on the proposed electricity PCIs. Since the introduction of the revised TEN-E Regulation (2022), ACER’s Opinions address proposed hydrogen and electricity PCIs and PMIs.

ACER also actively participates in the selection process by providing views, remarks, and analyses either to the regional groups or within the framework of the Cooperation Platform (an informal working group comprising representatives of ACER, the Commission, and the ENTSOs, established to discuss and resolve issues connected with the PCIs selection).

In September 2023, ACER provided its Opinion on the European Commission’s draft regional list of proposed PCIs and PMIs, addressing hydrogen and electricity infrastructure projects respectively.

For the first time, hydrogen infrastructure projects are included as an eligible PCIs/PMIs category.

What are ACER’s recommendations?

In both its Opinions, ACER identifies three areas for improvement:

• reconsidering how infrastructure needs are identified;

• improving the effectiveness of the selection methodology; and

• ensuring greater transparency in the selection process and in applying the methodology.

In the case of hydrogen PCIs/PMIs, ACER acknowledges the complexity and recommends these enhancements for the next selection process (expected in 2025).

In both cases, ACER concludes that it is unable to assess the consistent application of the TEN-E Regulation selection criteria and the cost-benefit analysis across the candidate projects.

The TEN-E Regulation introduced the so called “Projects of Common Interest" (PCIs). PCIs are infrastructure projects which have a significant impact on the EU electricity and gas systems, and help the EU achieving its energy policy and climate objectives: ensuring affordable, secure, and sustainable energy for all citizens.

PCIs also play a key role in the long-term decarbonisation of the economy in accordance with the Paris Agreement.

The PCI label helps accelerating the planning, streamlining permit granting and thus facilitating faster commissioning of projects, which bring the highest value to the European consumer.

Every two years, the European Commission draws up a list of PCIs, starting with the first list in 2013.

In April 2022 the fifth PCI list entered into force, with 98 projects in total: 72 electricity transmission, storage and smart grid projects, 20 gas and 6 CO2 network projects.

On 3 June 2022, the revised TEN-E Regulation was published in the Official Journal of the European Union.

The new Regulation, among others, aims to:

• conform the infrastructure development to reflect the climate mitigation’s targets,

• promote the integration of renewables and of clean energy technologies into the energy system,

• continue to connect isolated regions,

• strengthen existing cross-border interconnections and

• promote cooperation with partner countries.

​ACER contributes to various activities concerning the selection, implementation and monitoring of the electricity and gas transmission, storage and smart-grid PCIs (for example via opinions on draft Regional lists of PCIs, decisions on cross-border cost allocation, monitoring reports on PCI progress). ACER also provides support through the scrutiny of respective TYNDPs, which are used as a gateway to the PCI label.​

The Green Deal Strategy (and its Acton Plan) is transformative. It recognises that to meet the challenge of net zero requires action by everyone in every aspect of society and the economy. We must go further and faster. More renewable electricity on its own is not enough. Instead, we must re-think of all the ways we contribute to climate change (manufacturing, transportation, heating) to have a holistic approach.

Hence, the European Commission is developing a wide range of Green Deal strategies including on biodiversity, agriculture, buildings, taxation (including a carbon border tax) and decarbonising the energy sector to transition to clean energy.

In 2021, major reforms to EU laws are expected including on renewables, emissions trading and clean hydrogen.

As an EU Agency, ACER is playing its part by applying a Green Deal lens to its core work and providing expertise on key energy legislative files (such hydrogen or ensuring the TEN-E energy infrastructure funding framework is fit for purpose for decarbonisation).​

The challenge of climate neutrality is huge. The European Commission's proposed European Climate Law (in the final stages of negotiations by Europe's co-legislators) seeks to make carbon neutrality a legal obligation. A key part of the Green Deal is setting targets for GHG emissions every decade until “net-zero" GHG emissions is reached by 2025.

For the year 2030, the European Council endorsed a cut of “at least 55% in GHG emissions (the earlier 2030 target was a 40% cut) in December 2020 whereas the European Parliament calls for an even more ambitious 60% emissions cut.

​A pillar of the Commission's Green Deal proposal is to increase funding for the transition by mobilising €1 trillion for sustainable investment over the next decade, and to put sustainable finance at the heart of the financial system.

The EU's €750 billion Next Generation EU (NGEU) recovery package (agreed by the Council in July 2020) targets climate change with 37% of it dedicated to the European Green Deal. A Just Transition Mechanism addresses equity concerns by focusing on the regions, industries and workers who will face the greatest challenges in the transition to a cleaner Europe.

ACER (an EU Agency) is a valued partner to the EU Institutions providing data, insights and advice on the regulatory aspects of the Green Deal:

1. ​Regulating hydrogen and power-to-gas in the context of the Commission's Hydrogen Strategy for a Climate-Neutral Europe and the Strategy for Energy System Integration.
2. ​​Revising TEN-E Regulation (a legislative Initiative on energy infrastructure).
3. ​Offshore Renewable Energy Strategy.

Hydrogen and Power to Gas​​

ACER and CEER have developed a series of European Green Deal Regulatory White Papers to increase public understanding on key regulatory aspects and to assist the European Institutions as part of the preparations for legislation.​

TEN-E Regulation

The Trans European Network-Energy (TEN-E) Regulation is the EU framework for planning and supporting cross-border energy infrastructure.

The European Commission proposal (December 2020) on the TEN-E Regulation revisions seek to modernising the TEN-E framework, reflecting the Green Deal objectives and making it fit for the infrastructure needs of the sustainable energy system of the future. 

As input to the European Commission's review of the TEN-E Regulation, in July 2019, regulators set out 18 recommendations on how to improve the TEN-E Regulation and energy infrastructure governance in the ACER-CEER Position Paper on Revision of the Trans-European Energy Networks Regulation (TEN-E) and Infrastructure Governance.

ACER and CEER see scope​ to further improve the Commission's proposals (December 2020)​.
 

Off-shore wind

The European Commission in its Offshore Renewable Energy Strategy has set a massive goal of increasing offshore wind capacity from 12 GW to 300WG in 2050.

It is important to facilitate the deployment of hybrid projects - combining power, storage and/or electrolysis - such as cross-border offshore windfarm projects (that also function as interconnectors) to enable the massive four-fold increase in offshore wind to 60 GW in 2030 and to 300GW by 2050.

A coordinated offshore strategy builds mutual reliance across EU Member States with cooperation needed on multiple aspects e.g. planning, governance, optimisation, plus potentially also proving an ill-fit over time with national energy or renewable strategies (risk of accounting or methodological rigour becoming aims 'in their own right').

Successfully scaling offshore is inextricably linked to Europe's infrastructure challenge and hence touches upon many elements of ACER's core work such as bidding zones, European infrastructure Projects of Common Interest (PCIs) and how to allocate costs (Cross-border cost allocation (CBCA).

This level of ramp up requires the right legal regulatory framework.  ACER notes that the European Commission's TEN-E proposal excludes ACER from off-shore network development process. Furthermore, it detaches off-shore network development from on-shore (through separate network development plans, run in different cycle lengths). 

​​

​​Energy System Integration

The decarbonisation of the energy system requires an increasing level of integration between its various components.

Energy system integration refers to the planning and operation of the energy system as a whole - across multiple energy carriers (e.g. electricity, gas, heat), infrastructures, and consumption sectors (industry, buildings, transport) - by more strongly linking them with the objectives of decarbonisation, energy efficiency, affordability and reliability of the energy system.

The European Green Deal is Europe's growth strategy to make its economy more sustainable.

This ambitious Green Deal strategy aims to make Europe “climate neutral" by 2050. This means “net-zero" emissions.

Energy accounts for more than 75% of the EU's greenhouse gas (GHG) emissions. Decarbonising the energy sector forms the backbone of the Green De​al and ACER's work is highly relevant.​

The Green​ Deal sees as key parts of the decarbonisation solution:​

• A massive increase in renewables (i.e. sustainable electricity)

• Increased electrification (i.e. using sustainable electricity to then decarbonise other sectors such as transport and heating)

• Sustainable or low-carbon hydrogen (for “hard to decarbonise" sectors) ​​

The Green Deal introduces concepts which until recently were not part of most policymakers' vocabulary: e.g. Climate Neutrality, Power-to-Gas, Energy System Integration, Sustainable Taxonomy. ​

Check out ACER's Green Deal Glossary.​ 

ACER, as an EU Agency, significantly contributes in two main ways to Europe's Green Deal objective and the broader energy and decarbonisation objectives set at political level​:

1. ​delivering on our core regulatory mandate which are rooted to Europe's (2019) Clean Energy laws. 

2. ​providing advice and expertise to Europe's co-legislators on key Green Deal energy files​. See also the ACER-CEER Green Deal Regulatory White Papers.​

Article 1 of the ACER Regulation in referring to the establishment and objectives of ACER explains that ACER contributes “to the consistent, efficient and effective application of Union law in order to achieve the Union's climate and energy goals".

The Agency (and national energy regulators) play a pivotal role paving the way to decarbonise the economy at least cost to consumers by facilitating:

• the massive increase in renewables that is needed (about 3 times the current renewable capacity base) to decarbonise the power sector

• increased electrification of sectors (e.g. heating and transport) previously powered by fossil fuels (e.g. the regulatory treatment of EV charging stations)

• the growth of a competitive renewable/low-carbon hydrogen market  for energy-intensive or “hard to abate" emissions sectors (like aviation or chemicals)

• more “flexibility" in the energy system (e.g. storage and Electric Vehicles (EV)) to enable a big shift to renewables. Put simply, more wind and solar is not enough. Storage (e.g. batteries, hydrogen storage) and adapting consumption are two examples of flexibility that is needed to plug the gaps when there is too much/little sun and wind.

• empowering consumers (enabled through technology) to actively contribute to the transition (transforming how we use and generate energy, how we move around, and heat our homes) through smart homes, microgeneration and EV charging stations. The Agency's mandate was extended under the Clean Energy legislation to monitor compliance with the new consumer rights as well as monitoring electricity and gas wholesale and retail markets.

Alongside decarbonisation, ACER must also ensure that the European energy market is fully integrated, interconnected and digitalised to maintain security of supply. With energy identified as a critical sector in terms of cyber security, ACER plays a key role in electricity cybersecurity resilience and thus contributes to the wider EU cybersecurity strategy.

Europe's decarbonisation objective cuts across ACER work.

ACER pushes low-carbon solutions through market design and well-regulated markets and networks.

Energy and climate are linked. Energy accounts for > 75% of Europe's Greenhouse Gas (GHG) emissions. The framework in Europe has evolved.  Europe has a 2020 climate and energy framework, a 2030 climate and energy framework, and now a 2050 climate neutrality objective.

Europe's (2019) Clean Energy laws facilitate the “clean energy transition" away from fossils towards a more sustainable energy. A core focus of ACER's work is implementation of the Clean Energy laws.​ ACER, an EU Agency, contributes from a regulatory perspective, to the implementation of the European Union's Green Deal and the broader energy and decarbonisation objectives set at political level.​

ACER drives the decarbonisation of the energy sector by:

• Developing, implementing and monitoring the Network Codes – the binding EU-wide rules governing the electricity and gas sector. Why? Completing a well-functioning “Internal Electricity Market" is key for sustainable, reliable and affordable energy.

• Ensuring the electricity market rules and design (originally not intended for large amounts of renewables) are “fit for purpose" to integrate the massive expansion in renewables. In particular:
  • ACER is reviewing the functioning of the real-time (intraday and balancing) electricity markets, to improve market access to renewables and help improve forecast accuracy and reduces balancing needs.

• ​Ensuring the electricity market design foster all sources of flexibility (e.g. flexible storage, aggregators).
   
• Integrating national energy markets into a single European-wide market. An integrated electricity market allows electricity to move freely across borders and delivers benefits to generators (bigger market), operators (reducing the costs of balancing, reserves and system operation) and citizens (who have access to competitive markets and secure supply).
   
• Monitoring how markets are functioning and how national network tariffs can be structured to better suit the energy transition (e.g. incentivising grid companies to find the cheapest sources of flexibility and consumers to align their energy use with flexibility needs).
   
• Building cost-efficient infrastructure (e.g. to bring cheap offshore wind to consumers) based on robust regulatory scrutiny (and not building at any cost).
   
• Maximising the interconnection capacity made available to the market for trading so consumers can chose from the cheapest and lowest emitting power available across Europe.
   
• Cooperation and dialogue among relevant stakeholders e.g. to deliver on the envisaged level of off-shore wind requires cooperation among Member States, project developers, network operators etc.

The timely implementation of the necessary electricity transmission infrastructure in Europe is crucial for an efficient EU energy market and to facilitate the integration of increased renewable power generation in view of the decarbonisation objectives.

The projects' progress may defer from what was previously planned for various reasons. It is important to differentiate between delayed and rescheduled investments:

• A delayed investment means that it is still needed at the expected date, but it cannot be delivered on time because of external factors (e.g. environmental, permit granting or legislative reasons) or

• A rescheduled investment is voluntarily postponed by a project promoter due to changes of its external driver (e.g. lower demand, less urgent need or priority to other transmission solutions).​​

ACER is responsible for monitoring the implementation of investments to create new interconnection capacity as well as the Ten Years Network Development Plans' (TYNDP) progress.

If any inconsistency is found, ACER makes recommendations to the transmission system operators, national regulatory authorities or any other competent bodies concerned. The ACER monitoring of the implementation of investments in electricity transmission networks evaluates the following fundamental aspects: expected benefits, costs, increase of transfer capacity, and the status and time-progress of each investment.

​ACER found that several TYNDP investments encounters delays over time, most frequently due to permit granting reasons and even more have been rescheduled by the promoter. ACER also finds that a number of interconnectors have different investment status across the border, which could point to limited cross-border coordination among the parties.​

Development of the electricity transmission networks is crucial for market integration, security of supply and sustainability in Europe. The EU-wide Network Development Plan (EU TYNDP) developed by ENTSO-E is a major tool for coordinated and efficient network planning. However, given its non-binding nature, the TYNDP implementation strongly depends on National Development Plans (NDP).

This highlights the need for an efficient two-way interaction between the NDPs and the TYNDP.​

ACER assesses the consistency of the NDPs with the EU TYNDP. In case ACER identifies inconsistencies between the two, ACER recommends appropriate amendments. 

ACER found a growing consistency of the NDPs with the EU TYNDP over time. Yet, it identified that some of the national practices may negatively impact the robustness, credibility and transparency of the NDPs or they could result in inconsistencies with the EU TYNDP.

Therefore, ACER advised a number of measures to be pursued by the responsible parties when developing, reviewing or adopting the NDPs.​​​

Every two years, the European Network of Transmission System Operators for Electricity (ENTSO-E) adopts a non-binding Union-wide ten-year network developme​​nt plan ​(TYNDP), including a European generation adequacy outlook.

The TYNDP plays a central role in the development of electricity transmission infrastructure in Europe, which is needed for achieving the European policy goals.

The main objectives of the TYNDP are:

• to identify investment gaps, including cross border capacities

• to contribute to a sufficient level of cross-border interconnection and non-discrimination, effective competition and the efficient functioning of the market

• to ensure a greater transparency of the European electricity transmission network.

The TYNDP prepared by ENTSO-E builds on national investment plans prepared by the transmission system operators (TSOs) and takes into account the regional investment plans, published every two years.​

ACER is responsible for:

• Providing an opinion on the contribution of the TYNDP to ENTSO-E, the European Parliament, Council and Commission, whenever ACER considers this draft is not contributing to the market's transparency and effective competition.

• Assessing the consistency between the European TYNDP and the national plans. If inconsistencies are found, ACER recommends amending the national plan or the TYND.

• Monitoring the implementation of the TYNDP, after its positive evaluation. If ACER identifies inconsistencies, it investigates the reasons and makes recommendations to TSOs, NRAs and other competent bodies, in order to contribute to the investments' implementation.

In its latest Opi​nions (April 2023), ACER acknowledges the difficulties arising from the TYNDP process and welcomes a number of improvements in the draft 2022 electricity TYNDP.

However, significant steps forward are still needed, and for this purpose ACER recommends ENTSO-E to:

• Make all relevant inputs accessible in a clear and straightforward format as part of the 2022 final electricity TYNDP publication.
• Provide transparency on how the investment costs for the needs identification were derived by distinguishing between internal reinforcements and overall project costs.
• Publish for each cross-zonal boundary and each flow direction the transfer capacities of the current grid, starting grid (for the purpose of needs identification) and of the reference grid for 2030 and for 2040.
• Use the 10,000 EUR/MWh Value of Lost Load (VoLL) where no specific data is available.
• Explain how an assessment of resilience, if any, was carried out in the 2022 final electricity TYNDP (potentially including improvements for future TYNDPs).
• Review and eliminate the project-specific inconsistencies reported in ACER Opinion on electricity projects and consider the differences identified by national regulators between the NDPs and the 2022 draft electricity TYNDP.

Also, specific recommendations to ENTSO-E on a substantial improvement of future TYNDPs are provided, inter alia:

• Restructure the TYNDP development process in order to complete it by December of the TYNDP year (considering also ACER’s opinion).
• Conduct a substantial consultation of the important methodological elements and parameters considered in the various deliverables of the TYNDP early enough in the process to have the capability to consider stakeholders’ comments.
• Calculate the benefits of projects according to all the joint scenarios developed by ENTSOs, and for all relevant time horizons to ensure adequate consideration of uncertainty.
• Base the modelling of the grid on an appropriate starting grid (for the needs exercise) and reference grids (for the CBA assessments) by including only the projects which strictly comply with the rules set in the respective implementation guidelines.
• Calculate the additional transfer capabilities of each project (and not leave this task to the promoters themselves), perform the calculations with more granularity (e.g. calculate at least seasonal NTCs) and improve their transparency.
• Consider the impact of the 70% interconnection capacity availability targets where relevant in the modelling of the power system for the development of the TYNDP.
• Enhance the consistency between the NDPs and the EU TYNDP by implementing the measures recommended in the ACER Opinion on electricity projects.