Issue link: https://fhpublishing.uberflip.com/i/1162971
INTERCONNECTORS ers – and interconnectors are vital to achieving these aims. But, due to a combination of adverse investment condi - tions, regulatory ambiguity and a general lack of incentives, interconnection levels in Europe are lagging behind targets. This matters, because it threatens to jeopardise Europe's ability to meets is clean energy goals, set out as part of the EU Commission's Clean Energy Package. Launched in November 2018, the package's chief objective is to provide clean energy for all European citizens, mobilising up to €177 billion of public and private investment per year from 2021 to reduce carbon emissions and generate economic growth. Cross-border electricity cables are seen as the lowest-cost route to decarbonising EU energy sup - ply, as they reduce the need for (o‡en inefficient) local genera- tion, by allowing energy to be transmitted from where it can be most economically produced to where it is most needed. The European Council wants to achieve interconnection of at least 10 per cent of each mem- ber state's installed electricity production capacity by 2020, ris- ing to 15 per cent by 2030. As things stand, just 17 of the 28 member countries are on track to reach the 2020 target. The European Council admits its interconnection goals are "ambitious" (although non- binding), but says they are necessary to help achieve a 45 per cent reduction in the bloc's emissions against 1990 levels by the 2030 horizon. In order to meet its intercon - nection targets, it seems likely that the European Commission will need to rethink its approach to how these projects are ap - proved and financed, as current models do not appear to be working. The interconnector disconnect Despite their importance, inter- connectors are largely unheard of outside power and energy regulatory circles. This could change, as the EU comes under pressure to meet its interconnection targets and connect growing renewable gen- eration capacity with the grids that supply energy consumers. Interconnectors cost billions to build, but should theo - retically pay for themselves in a properly functioning energy market. They generate income from congestion revenues, derived from the price difference be - tween the power seller, at one end of the interconnector and the power buyer, at the other. Congestion revenues are therefore dependent on the existence of energy price dif - ferentials between markets, with electricity (or gas) ideally flow- ing from lower priced to higher priced markets. The difference is paid to the owner/operator of the intercon- nector, o‡en a transmission system operator (TSO), in return for "managing" the congestion. TSOs are also compensated NETWORK / 25 / SEPTEMBER 2019 for assuming other regulatory responsibilities, such as liability management, organising third party access to power supply and setting regulated tariffs. Managing the market One issue that needs to be ad- dressed by any future reforms of the EU interconnector sector is the tension between publicly funded and so-called "mer - chant" interconnectors. European legislation in- cludes specific conditions on how congestion should be man- aged and how revenues derived from interconnectors can be used, which vary depending on whether an interconnector operator is designated as a TSO. A TSO is entrusted with transporting energy (natural gas or electrical power) on a national or regional level, us- ing fixed infrastructure (which could include an interconnector) – a function defined, certified and monitored by the European Commission. As TSOs are o‡en wholly