Issue link: https://fhpublishing.uberflip.com/i/1162971
INTERCONNECTORS or partly owned by national governments and have a natural monopoly over energy transmis- sion in their region, they are subject to state regulation. TSOs must provide grid access to other electricity market players (i.e., generating companies, traders, suppliers, distributors and directly con - nected customers) according to non-discriminatory and trans- parent rules. Article 16 of the Commission Regulation (2017/2196) states that TSOs are obliged to use the revenues of congestion manage - ment to guarantee energy avail- ability and, if practical, re-invest in increasing the interconnec- tor's capacity. Additional layers of obli- gation may be added to an interconnector operator, public or merchant, if they decide to apply for various other certi - fications, such as project of common interest (PCI) status (governed by the 2013 Trans- European Networks – Energy (TEN-E) regulations), state aid funding and certain exemptions from various regulatory require - ments. TSO or no? A clutch of recent and pend- ing certification decisions from the European Commission, the Agency for the Cooperation of Energy Regulators (ACER) and various national regulatory authorities (NRAs) have pro- vided some clarity on when an interconnector operator will be considered a TSO or a merchant operator, but the matter is still unclear for some projects. If an interconnector is not a TSO, in theory the operator is free to pay this revenue to pri- vate investors, but also needs to set aside some of its income for possible fines from NRAs (if, for example, the operator fails to guarantee the required capacity) and other expenses. The regulatory framework established around the intercon - nector industry is designed to favour TSOs and consequently makes it difficult for merchant interconnector projects to get off the ground in the first place and compete in the market once they have. Despite pledging to mobilise both public and private invest - ment to meet its clean energy objectives, the EU Commission is nervous about entrusting the operation of critical energy infrastructure to profit-seeking businesses. While TSOs are important investors in private interconnec - tor projects, they are potentially conflicted, as competition from additional interconnectors is likely to reduce congestion rates, and therefore revenue, on existing interconnector capacity. The gap between current capacity and interconnection targets suggests that TSOs are unable or unwilling to make the necessary investment required by the EU Commission to meet interconnection objectives. TSOs can also face restraints on the flexibility of their financ - ing and may lack the bandwidth to deal with at least two sets of stakeholders in different jurisdictions linked by intercon- nectors, further curtailing their ability to drive progress. These are among the reasons NETWORK / 26 / SEPTEMBER 2019 why some argue that a greater role needs to be handed to mer- chant interconnectors. Certainty and simplicity For merchant interconnectors, legal certainty and security of investment need to be satisfied before a private investor, or a consortium of investors, will commit to funding a project. To date, the experience of merchant interconnectors seek - ing to develop EU projects has generally been a struggle. There are good reasons why the European Commission might be ambivalent to mer - chant interconnectors. For one thing, regulated energy links are more transpar- ent and easier to monitor and manage than privately funded projects – an argument that carries some weight considering the strategic importance of large energy infrastructure. There is also a policy issue, centred on the idea that conges - tion revenues should be used to fund more investment in inter- connectors, rather than private sector returns. Some are worried that mer- chant investment will crowd out regulated investment, causing TSOs to lose control of vital infrastructure to the benefit of financiers and the detriment of consumers. However, cheerleaders for private sector interconnectors point out that merchant opera- tors can potentially build bigger and more innovative projects faster than TSOs can, so it seems counterproductive not to encourage this approach, albeit within firm parameters. Application and approval procedures for interconnec- tor projects also need to be streamlined to encourage more projects to be built – especially by private investors, who are less willing to wait for extended periods to get their money back. Lots of interconnector projects get stuck in the permit- ting process, which takes a minimum of 3.5 years to gain consent. Projects seeking PCI status take even longer to get from ap- plication to approval, commonly taking in excess of five years for gas interconnectors and more than 10 years for electricity. An ACER report published in July 2018 on the progress of PCIs found that almost half of electricity and gas projects were delayed or rescheduled, with permitting the most commonly cited reason for electricity pro - ject rescheduling. Gas projects were delayed due to finance and other market issues, but permitting was also high on the list of stumbling blocks. To break this impasse, both the public and the private sector need to come up with new ways of bringing more finance and expertise into the interconnec - tor market and consider how merchant assets can be aligned with public policy goals. Brexit Since the UK missed its original Brexit deadline of 29 March 2019, politicians have failed to demystify what any future EU- UK relationship will look like. While there has been much discussion about potential trade relationships, scarcely any at - tention has been paid, before or since the Brexit referendum, to energy trading or the UK's long- term energy security. Opinion is divided on how disruptive Brexit will be to the UK's energy market, but most agree the UK is likely to come out of it on less favourable terms than it has currently. Few outside the intercon - nector industry realise that the UK is physically connected to Pictured from left to right: David Haverbeke, Yohanna Weber and Lis Blunsdon from Fieldfisher.