The energy sector is characterised by four macro trends:
First, industry decarbonisation means faster electrification of our economy; it is also the best way to implement the energy efficiency first principle.
Second, as up to 80% of new renewables are connected at the local level, distribution networks and their interaction with transmission will gain in importance.
Third, variability of production and prices has increased considerably in recent years and puts new requirements on system stability and management.
And finally, the new geopolitics has considerably increased risks as witnessed in the Baltic Sea region.
More investments are urgently needed in networks, smart systems, digitalisation, and combatting both physical and cyber threats.
Common to these trends is the urgent need for more investments in grids, in smartening and digitalisation and in measures to protect physical and cyber threats.
The European Commission estimates that 584 bn€ should be invested by 2030 in electricity grids alone, two or three times more than today. The regulation on trans-European networks for energy (TEN-E) provides since 2013 a robust approach to plan European grids which is based on top-down planning.
Therefore, the first recommendation is that priority should be put on implementation of the TEN-E and the identified PCIs, including Fingrid’s Aurora Lines 1 & 2 and Estlink 3.
The unnecessary bureaucracy should be removed from the PCI selection process. Scenarios for both grid planning and adequacy assessment should better reflect possible futures and risks and be coherent.
Regional cooperation should be put in the centre, as a stepping stone for a European approach, to build common understanding of bottlenecks and to agree on prioritisation of projects and solutions, as well as to ensure effective follow-up of project implementation. The existing High Level Groups, like BEMIP that involves Fingrid, should be reinforced to this effect.
One important question remains open: How to really share costs?
The main challenges being uncertainty of the future, different outcomes from different scenarios, and political implications. It is therefore recommended to look into the broader question on whether the current framework (tariffs, congestion rents, inter-TSO compensation mechanism, cost sharing, EU funding…) is optimal.
A bigger EU support would make cost sharing easier and hence speed up implementation. However, more tariff and private financing will nevertheless be needed. Therefore, the EIB could be tasked to develop financial instruments in the form of e.g. guarantees, interest rate rebates, equity.
Catharina Sikow-Magny
Part-time professor
Florence School of Regulation
