Winter seminar 2015 - The European Energy Infrastructure Challenge D. Alberto Pototschnig, Director ACER

1. The European Energy Infrastructure
Challenge
Alberto Pototschnig, Director
Funseam: Winter Seminar
Madrid, 6 March 2015

2. President Junker’s Priorities
The European Energy Union
.pool our resources, combine our infrastructures
and unite our negotiating power vis-à-vis third countries
.diversify our energy sources, and reduce the energy
dependency of several of our Member States
.keep our European energy market open to our
neighbours. However, if the price for energy from the
East becomes too expensive, either in commercial or in
political terms, Europe should be able to switch very
swiftly to other supply channels. We need to be able
to reverse energy flows when necessary
.strengthen the share of renewable energies on our
continent. This is not only a matter of a responsible
climate change policy.[…] Europe’s Energy Union to
become the world number one in renewable energies
2

3. The European Energy Union
Energy
Union
Energy
security,
solidarity and
trust
A fully-
integrated
Internal
Energy
Market
Energy
efficiency/
moderation of
energy
demand
Decarboni-
sation of the
economy
Research and
Innovation
3

4. EU Energy Policy and Infrastructure
Sustainability Competitiveness Security of
Supply
Support the
penetration of
renewable
energy
sources
The Three Pillars
Infrastructure
Support the
integration of
the Internal
Energy
Market
Support the
diversification of
energy sources
and routes and
the cross-border
sharing of
generation
capacity
4

5. European Council Conclusions – 4 Feb 2011
More Efficient Use
of Existing
Infrastructure
Removal of
Energy Islands
(by 2015)
Market
Integration
(by 2014)
Infrastructure
Expansion
Market Design
Improvements
Efficient
Infrastructure
Planning and
Development
5

6. .Electricity transmission systems, storage and
smart grid applications
€ 142 bn
of which:
» Interconnections € 70 bn
» Offshore connections € 32 bn
» Smart grids € 40 bn
.Gas pipelines, storage, LNG terminals and
reverse flow infrastructure
€ 70 bn
of which
» Outside the EU € 12 bn
Energy Infrastructure Investment
European Commission’s estimates – November 2010
(Energy Infrastructure Priorities for 2020 and beyond)
6

7. .“Mid-term mature” projects € 35-42 bn
(commissioning by 2019)
.“Long-term mature” projects€ 25-36 bn
(commissioning in 2020-24)
.“Less mature” projects € 44-66 bn
(commissioning beyond 2024)
Electricity Infrastructure Investment
ENTSO-E TYNDP 2014 as assessed and aggregated in the Agency’s
Opinion No 01/2015 of 29.01.2015
7

8. Project Cost Estimates (€bn)
Gas Infrastructure Investment
ENTSOG TYNDP 2013-2022
8
Infrastructure Type FID Non-FID Total)
Transmission (incl. CS) 7.1 53.4 60.5
LNG Terminals 1.8 6.9 8.7
Storage Facilities 0.8 2.8 3.6
Total 9.7 63.1 72.8

9. Infrastructure Planning and Development
Third Energy
Package
(2009)
TYNDPs
- Non-binding, … but reference for
national NDPs
- EU dimension in Network Planning
- TYNDPs updated every two years
TEN-E
Regulation
(2013)
Projects of Common Interest
(PCI)
TEN-E
Guidelines
(2006)
Projects of Common/European Interest
- Long list of approx. 550 projects
- Selection based on political agreement
- No revision of the list envisaged in 7 yrs
9

10. .Objectives
» Implementation of 12 priority corridors/areas …
» necessary to meet EU’s energy and climate policy
goals by 2020 and beyond …
» by providing policy and regulatory certainty …
» through a stable and appropriate regulatory
framework …
» to promote the necessary investments
TEN-E Regulation
Regulation (EU) No 347/2013
10

11. 35
46
“Smart grids” and Electricity highways all MS concerned
Priority Electricity corridors
Baltic Energy Market
Interconnection Plan
in electricity
North South
interconnections
in Central and
South Europe
Northen Seas Off-shore
grid
North South
interconnections
in Western Europe
11

12. 109
87
Priority Gas corridors
North South gas interconnections in
Central Eastern and South Europe
Southern Gas Corridor « SGC »
North South gas interconnections
in Western Europe
Baltic Energy Market
Interconnection Plan
in gas
12

13. Energy Infrastructure Investment
“Connecting Europe – The energy infrastructure for tomorrow”
13
Priority Corridor/Thematic Area
Total
Investment
Need (€ bn)
Estimated
Investment
Gap (€ bn)
North Seas O/S G 30 8
NSI West Elec. 30 6
NSI CEE-SEE Elec. 40 12
BEMIP Electricity 5 3
Smart Grids 40 20
Total Electricity 145 49 (34%)
NSI West Gas 20 1
NSI CEE-SEE Gas 26 5
Southern GC 22 8
BEMIP Gas 3 2
Total Gas 71 16 (23%)

14. Electricity Transmission Investment
Expected Investment Costs per country (€bn)
(excluding smart grids)
14
Source: ENTSO-E, 2012.
0
5
10
15
20
25
30
35
DE
UK
FR
IT
NO
ES
IE
NL
PL
SE
BE
CZ
PT
DK
AT
FI
LT
RO
LV
EE
GR
LU
SK
SI
BU
HR
HU
CY

15. PCI Toolbox
.Expedient permit granting procedures
» Priority status, including for EIA procedures
» Competent authority to manage permitting
» Time limits for procedures (3.5 years max)
» Enhanced transparency and public participation
.Regulatory and other support measures
» Cost-benefit analysis (CBA)
» Cross-border cost allocation (CBCA):
“beneficiaries pay” principle
» Risk-related incentives
» Financial support (grants for studies and
financial instruments for all PCIs and grants for
works for some)
15

16. Importance of the Cost-Benefit Analysis
.The CBAs should represent the basis for:
» Preparation of TYNDPs (including an
assessment of individual projects) by ENTSOs
» PCI selection by Regional Groups (EC and
MSs)
» CBCA decisions by NRAs (or ACER)
» Decisions to extend grants for works support
under the Connecting Europe Facility
.ENTSOs released draft CBA methodologies on
15 November 2013
.Agency’s Opinions on 30 January 2014 (ENTSO-
E’s CBA) and 13 February 2014 (ENTSOG’s CBA)
16

17. Projects of Common Interest (PCIs)
.General criteria:
» Contribute to infrastructure priorities (corridors)
» Economic, social, environmental viability
» Involve at least two Member States
» Have significant cross-border impact
» Part of TYNDP (from the 2015 PCI list)
.Specific criteria:
» Market integration (market, price convergence)
» Security of supply
» Sustainability
» Competition (diversification – gas only)
17

18. PCI Identification Process
Prepare
TYNDP for
E and G
ENTSO
Project
Promoters
Submit
candidate
projects
Criteria
CBA for
mature
projects
NRAs
Check
criteria
application
and cross-
border
relevance
Regional
Groups
Evaluate
Projects
Rank
Define
regional
lists
Opinion on
the draft
Regional
Lists and
cross-border
consistency
MSs
EC
MSs and
EC decide
on
Regional
PCI Lists
EC
adopts PCI
list
18

19. First Union PCI List
.Approved by Member States on 24 Jul 2013
.Adopted by the Commission on 14 Oct 2013
Commission Delegated Regulation (EU) No 1391/2013
ELECTRICITY PCIs Transm. Storage Sm. Grids Total
North Seas O/S G 24 3 27 (12)
NSI West Elec. 28 4 32 (21)
NSI CEE-SEE Elec. 57 4 61 (26)
BEMIP Electricity 10 2 12 (7)
Smart Grids 2 2 (2)
Total 119 13 2 134 (68)
GAS PCIs Pipelines LNG/CNG UGS Total
NSI West Gas 24 2 1 27 (20)
NSI CEE-SEE Gas 44 5 4 53 (23)
Southern GC 11 1 0 12 (4)
BEMIP Gas 8 3 1 12 (8)
Total 87 11 6 104 (55)
19

20. Electricity and Smart Grids PCIs
20

21. Gas PCIs
21

22. PCIs involving Spain
PCI n. Description
2.6 Spain internal line between Santa Llogaia and Bescanó (ES) to
increase capacity of the interconnection between Bescanó
(ES) and Baixas (FR)
2.7 France - Spain interconnection between Aquitaine (FR) and
the Basque country (ES)
2.8 Coordinated installation and operation of a phase-shift
transformer in Arkale (ES) to increase capacity of the
interconnection between Argia (FR) and Arkale (ES)
2.17 Portugal - Spain interconnection between Vila Fria - Vila do
Conde – Recarei (PT) and Beariz - Fontefría (ES)
5.4 3rd interconnection point between Portugal and Spain
5.5 Eastern Axis Spain-France - interconnection point between
Iberian Peninsula and France at Le Perthus– currently known
as Midcat
22

23. Main features of the Agency’s approach
(Recommendation No 07/2013 of 25 September 2013)
.Economic, social and environmental costs and
benefits of the projects to be taken into account
.Compensation provided only if at least one hosting
country bears negative net benefit
.Compensation should mainly aim at the “elimination
of the negative net benefit”
.Compensation should be provided by countries to
which the project provides a “significant” positive
net benefit
.“significance threshold” equal to 10% of the sum of positive
net benefits of all net benefiting countries
Cross-border cost allocation (CBCA)
23

24. Investment/CBCA Requests
Total investment requests (22) Electricity (5) Gas (17)
CBCA decisions taken by NRAs 3 10
CBCA decisions taken by ACER 0 1
CBCA decisions pending at ACER 1 0
Investment request still incomplete 0 1
Investment requests withdrawn 1 5
TOTAL 5 17
24

25. PCI code Project name Status
4.2.1
Interconnection between Kilingi-Nõmme (EE)
and Riga CHP2 substation (LV)
Decision adopted
by NRAs
4.2.2 Internal line between Harku and Sindi (EE)
Decision adopted
by NRAs
4.4.1
Internal line between Ventspils, Tume and
Imanta (LV)
Decision adopted
by NRAs
4.5.1
LT part of interconnection between Alytus (LT)
and LT/PL border
Referred to ACER
3.11.4 Internal line between Kocin and Mirovka (CZ) Withdrawn
Electricity CBCAs
as of January 2015
25

26. PCI code Project name Status
5.10
Reverse flow interconnection on TENP pipeline in
Germany
Decision adopted
by NRAs
5.12
Reverse flow interconnection on TENP pipeline to
Eynatten (Germany)
Decision adopted
by NRAs
5.18
Reinforcement of the German network to reinforce
interconnection capacities with Austria [Monaco
pipeline phase I] (Haiming/ Burghausen-Finsing)
Decision adopted
by NRAs
5.2
Twinning of Southwest Scotland onshore system
between Cluden and Brighouse Bay (UK)
Decision adopted
by NRAs
5.3
(part)
Shannon pipeline connecting PCI Shannon LNG
Terminal located between Tarbert and Ballylongford (IE)
in Count Kerry to the national gas grid at Foynes
Decision adopted
by NRAs
Gas CBCAs (1)
as of January 2015
26

27. PCI code Project name Status
5.7
Reinforcement of the French network from South to
North on the Bourgogne pipeline between Etrez and
Voisines (France) [Val de Saone project]
Decision adopted
by NRA
8.2.3
Capacity enhancement of Klaipeda-Kiemenai pipeline
in Lithuania
Decision adopted
by NRA
8.2.4
Modernisation & expansion of Incukalns Underground
Gas Storage
Decision adopted
by NRA
8.5 Gas Interconnection Poland-Lithuania (GIPL)
Decision adopted
by ACER
6.1
(cluster)
Cluster Czech–Polish interconnection upgrade and
related internal reinforcements in Western Poland,
including 11 PCIs
Decision by NRAs
appealed, but
subsequently
confirmed
Gas CBCAs (2)
as of January 2015
27

28. PCI code Project name Status
6.2
(cluster)
Cluster Poland–Slovakia interconnection and
related internal reinforcements in Eastern Poland,
including 9 PCIs
Decision adopted
by NRAs
6.3
Slovakia–Hungary Gas Interconnection between
Vel’ké Zlievce (SK) – Balassagyarmat border (SK/HU)
– Vecsés (HU)
Withdrawn
7.1.5
Gas pipeline from Bulgaria to Austria via
Romania and Hungary
Incomplete
request
8.1.1
Interconnector between Estonia and Finland
“Balticconnector”
Withdrawn
8.1.2.1 Finngulf LNG Withdrawn
8.1.2.2 Paldiski LNG Withdrawn
8.1.2.3 Tallinn LNG Withdrawn
Gas CBCAs (3)
as of January 2015
28

29. Context
.530 km pipeline with initial capacity
2.4 bcm/y, cost €558 m, net
benefits €830 m
.Aimed at ending isolation of Baltic
Member States from EU gas market
and at diversifying gas supply
GIPL CBCA Decision (1)
Process
.1 May: no NRA decision within 6 months deadline,
investment request referred to ACER (Art. 12(6) TEN-E
Regulation)
.May - July: consultations with NRAs and project
promoters
.11 August: Decision No 01/2014 adopted and notified
to parties concerned. Decision published on 29 August
29

30. Assessment
.Admissibility, completeness
and maturity
.Costs and benefits by Member
State
GIPL CBCA Decision (2)
Cross-Border Cost Allocation
(ACER Recommendation No 07/2013 of 25 September 2013)
.Compensation payable upon project commissioning
GIPL Costs and Benefits (€m)
0
100
200
300
400
500
600
700
800
PL LT LV EE
Benefits
Costs
Payer TSO Recipient TSO
Compensation
Payment (€m)
AB Amber Grid (LT) Gaz-System S.A. (PL) 54.9 (64.0%)
JSC Latvijas Gāze (LV) Gaz-System S.A. (PL) 29.4 (34.3%)
AS EG Vorguteenus (EE) Gaz-System S.A. (PL) 1.5 (1.7%)
Total Compensation 85.8 (100%)
30

31. CBCA Decisions: Main Features
.The vast majority of the CBCA decisions are on
projects located in one country in which the relevant
TSO will bear 100% of the costs
.In half of the cases the NRAs accepted the CBCA
proposed by the Project Promoters
.In all but one case, the NRAs have agreed not to
allocate costs to non-hosting beneficiaries
.In the two cases where more than 7% of CAPEX
were proposed to be allocated to any non-hosting
beneficiary, the concerned NRAs failed to reach an
agreement
.GIPL: ACER Decision 11 August 2014
.LitPol: referred to ACER on 9 December 2014
31

32. 0
100
200
300
400
Work
Study
Type of
action
€million
Connecting Europe Facility
.€ 5.85 bn of financial support to energy PCIs (2014-20)
.First round (21 November 2014): € 647 million
32

33. CEF Funding: First Round
Corr./
Area
PCI Name
Action
Type
€ m
BEMIP
Gas
PCI Poland-Lithuania interconnection Works 306.0
BEMIP
Elec
Interconnection between Kilingi-Nömme (EE)
and Riga CHP2
Works 112.3
BEMIP
Elec
Internal line between Ventspils, Tume and
Imanta (LV)
Works 55.1
NSI West
Gas
PCI Twinning of Southwest Scotland onshore
system between Cluden and Brighouse Bay (UK)
Works 31.7
A G North Atlantic Green Zone Project (Ireland, UK) Works 31.7
NSOG PCI Norway-United Kingdom interconnection Study 31.3
BEMIP
Gas
Capacity enhancement of Klaipeda-Kiemenai
pipeline in Lithuania
Works 27.6
Others 51.5
33

34. Working towards the Second PCI List
.Expected to be adopted in Autumn 2015
.More robust CBA methodologies available
.Cross-border Cost Allocation
.Application of the
.“elimination of the negative net benefit” criterion
.“significance threshold” criterion
34

35. Thank you for
your
attention
Thank you
for your attention
35
www.acer.europa.eu