Decarbonising the power sector: Past achievements and future constraints

Author: Thomas Sattich

In October 2009 European heads of state and government agreed on ambitious long-term climate policy objectives in order to prevent dangerous anthropogenic interference with the climate system and to ensure the European Union (EU) plays its part in limiting global temperature increases to 2°C. Moreover, European policy makers decided to bring the European Union on a demanding decarbonisation path, with the objective to reduce greenhouse gas (GHG) emissions by between 80 and 95 per cent by 2050 (Commission 2011b), as compared to 1990 levels.

Past achievements…

This decarbonisation agenda implies a major and swift transformation of Europe’s energy sector towards the large scale use of renewables. Different reference values indicate that the mix of energy carriers which supplies industry, transport and households with the necessary fuels, is indeed in transition from carbon-based towards renewable and carbon-neutral energy carriers (see Fig. 1). Greenhouse gas emission intensity of the EU’s energy system is following this development and fell of about 9 per cent over the last decade (EUROSTAT data). The European decarbonisation agenda hence shows first successful results.

Fig. 1: Europe’s energy transition in a nutshell

 

Greenhouse gas emissions intensity EU-27
Fig 2: Greenhouse gas emissions intensity EU-27

The power sector plays a fundamental role in this context: It represents about 37 per cent of the total CO2 emissions in Europe (2012), and is believed to be one of the sectors where the transformation could take place in the fastest and most economical way (Roques 2014:82). As a matter of fact, the contribution of electricity produced from renewable, carbon-neutral energy sources to electricity consumption grew of about 70 per cent over the last decade, with the result that renewables today already account for about 20 per cent of electricity generation (EUROSTAT data). And with many indicators suggesting stronger electrification across the end-use in industry, transport and buildings (Sugiyama 2012), the sector’s contribution for decarbonisation is likely to grow.

…and future constraints

Thus, a cursory glance at the European power system suggests on-going and successful decarbonisation. Should this trend continue, renewables will soon cover a significant share of Europe’s energy mix and deliver a main part of the energy supply necessary for daily life and business (Commission 2011c:5). These trends have, however, to be treated with great caution. In fact, a deeper analysis shows that the transition of Europe’s power system towards decarbonisation is about to enter a new and crucial phase, in which the rapid growth of renewables and the relative decline of conventional energy sources will meet serious constraints (Commission 2013a:2).

Behind this assumption stands the fact that today’s power system is still largely defined by conventional plants, with a technical and economic environment adapted to their needs: Interconnected by the power grid, these plants operate as interacting components in integrated power pools where the different generation units dispatch their power output to the momentary load . The technical features of some renewables (partly) disturb these technological and economical interactions (Schaber, Steinke & Hamacher 2012:123). Decarbonisation of the power sector therefore is more than a mere replacement of old power generation units with new, carbon-neutral ones, but requires the reorganisation of the environment in which renewables operate (see e.g. Schaber et al. 2012).

Europe’s energy transition and the power grid

Put differently: The integration and operation of renewables in the existing power pools is amongst the most important constraints for further decarbonisation of the European power sector. Power grids play a fundamental role in this context, as they are the prerequisite for flexible, interactive operation of power plants, the efficient allocation of generation units over a given territory, and the interconnection with consumption and storage centres. Given the technical features of some forms of RES power generation, a dense power transmission infrastructure, smart grids, and intelligent systems to predict RES loads are required for the operation of renewables (Capros et al. 2012:96).

According to the large majority of studies, the state of today’s power transmission infrastructure does, however, rather hamper large scale integration of RES (see for example Tröster, Kuwahata & Ackermann 2011). But renewables still represent a relatively small number of power generation units in the European system; the pressure to adapt existing power pools to their technical and economic requirements is therefore still limited. A successful decarbonisation of Europe’s power system will, however, lead to massive increase of renewables and thus strongly amplify the need for adaptations of the grid infrastructure to their technical specifications.

But the pressure that RES power generation puts on established power pools varies with the specific type of plant; specific measures to upgrade the grid will therefore differ from region to region. This poses several questions of technical, economic and political nature: How are policy developments in the EU responding to such challenges? What is needed in terms of infrastructure upgrades? How integrated do the EU’s electricity grids need to become? What sort of drivers and barriers are in place? Can infrastructure development keep pace with requirements under decarbonisation?

In order to evaluate the impact of European policy to upgrade the power grid to the needs of a decarbonised power system, and whether EU policy is sufficient and consistent enough to achieve decarbonisation by 2050, the following posts examine the complex relationship between renewables and the grid infrastructure, and the broader context of existing EU policy. In order to localise (potential) gaps in the European approach to grid development, a more detailed look on the respective EU programmes is necessary. Potential synergies, conflicts and alternatives in grid planning are also discussed.

The power of the grid: European electricity transmission infrastructure and its (potential) role in ‘decarbonisation’

Author: Thomas Sattich

The role of electricity grids for decarbonisation is largely explained by the fact that storage of electricity is difficult and costly: Power generation therefore needs to follow changing load in real-time in order to keep main voltage and grid frequency stable. The power transmission infrastructure is one of several ways to optimise this system, with interregional power lines providing system operators with the flexibility needed to keep the network stable despite local load changes (ECF 2010:70): The larger, the more flexible and diverse a power pool is, the better network stabilisation works.

Renewables greatly increase the need for flexibility (see below); a densely intermeshed and smart electricity transmission grid is therefore widely believed to be one of the preconditions for the achievement of EU’s decarbonisation target (Fürsch et al. 2013:642): European power grids need to be adapted to increase the capacity for flexible reactions to momentary load changes caused by renewables, otherwise further decarbonisation will be impossible. This is common knowledge. The question is, however, where exactly the increase of renewables will require adaptations, what kind of adaptations will be necessary, how the EU could intervene, what measures have been envisaged and/or implemented, and whether these are effective and sufficient. In order to answer these questions, the following section aims to determine the complex relation between the integration of (intermittent) renewables and (cross-border) power transmission infrastructure; moreover, the necessary reorganisation of the European grid is highlighted.

Electricity transmission networks and decarbonisation

Decarbonisation poses a double challenge for the European power transmission infrastructure: First, the availability of the energy carrier co-determines the location of power plants; the switch to renewables will thus change the distribution of power plants and the geography of the grid. Second, the product of electricity generation changes with decarbonisation; in contrast to carbon-based systems, where standardised units of coal, oil or gas make the power system partially independent from meteorological effects, many renewable energy plants depend on changing elemental forces such as wind and sun. Grid modernisation will thus be required to stabilise power supply.

The changing geography of the European power grid

Due to the relatively low energy density of most renewable energies, decarbonisation requires large territories such as wind parks; these will thus have to be developed and interconnected. Moreover, most renewables cannot rely on modern transport systems to bring the energy carrier to the plant, but solely on the electricity transmission infrastructure to bring their product to the consumer. And as the renewable energy sources required for power generation are a) distributed unequally , and b) typically to be found in remote regions, decarbonisation will result in a highly unequal distribution of generation sites.

Power transmission infrastructure will have to cover the growing transmission distances in order to bring the electricity to the consumer. There are, however, differences between the various forms of renewables: While wind, solar and tidal power will be highly concentrated in geographic areas that do not coincide with consumption centres, biomass can (partly) be transported to, and used in the power generation infrastructure in place. Where new transmission lines are necessary will hence greatly depend on the regional energy mix.

The impact of intermittent renewables on the grid

The changing location of generation sites has strong implications for the future shape of the European power grid. The same applies for the changing product of power generation: According to the International Energy Agency (IEA) and the European Commission, network balance is in jeopardy where intermittent renewables such as wind and solar power exceed five per cent (Commission 2012:8). Until that margin the existing power pools are flexible enough to counterbalance fluctuations in network frequency and voltage caused by changes in wind, solar and ocean energy.

Where, however, intermittent RES exceed this number, additional measures are required to provide the system with enough flexibility to absorb network fluctuations. In this regard the European power system is close to a paradigm shift: In 2011 intermittent renewables already amounted to 35 per cent of RES-generated electricity in 2011 (9 per cent in 2002), and seven per cent of all electricity generated (Eurostat online data). It can be expected that this number will climb to 49.7 per cent of RES capacity until 2020 (ECN 2011b:14, see Fig. 1); if current trends continue intermittent RES will hence account for a total of 17-20 per cent of European electricity (ECN 2011a).

The EU’s power sector is thus headed towards an era where the characteristics of intermittent renewables will increasingly determine the logic of power generation, transmission and consumption. Increasing the flexibility of existing power pools and their transformation to a smart and flexible system of power generation and consumption is thus the key to the sector’s further decarbonisation, and – in the long run – a complete switch to renewables.

With its capability to integrate otherwise isolated regions, and thereby to increase the capacity to keep growing network fluctuations under control of system operators, the power grid has a vital role to play in this adaptation. The need for more flexibility in particular areas and more interconnections with other parts of the European power grid depends, however, on the specific regional energy mix: Because the ability to control energy input and output largely varies between different forms of RES, not all parts of the network will be in need for the same level of interconnection.

Fig. 1: Intermittent and non-intermittent renewables in the European power system

The reorganisation of the European power grid

In order to continue the decarbonisation of the European power sector, electricity networks need to be reorganised. Two different dimensions can be identified in this regard: New infrastructure to cover the power sector’s changing geography and adaptations necessary to compensate growing network fluctuations caused by intermittent renewables. On both dimensions the European power grid has to be adapted to the requirements of renewable energies, if decarbonisation of the European power sector is to be continued.

This need for grid modernisation concerns also all parts , levels and sections of the grid, and can thus be described as universal. Ideas and plans for the reorganisation of the European grid are hence far-reaching, and include the construction of regional (North Seas Countries’ Grid Initiative), continental (the super-grid) and even transcontinental networks (Desertec). The varying characteristics of different RES technologies will, however, also pose specific challenges for particular sections of the power grid, depending on the particular energy mix in a given region.

In this specific context, cross-border transmission infrastructure is of particular importance, as it is badly developed, with generally low Net Transfer Capacity values: Exchange between the different national systems stagnates between 7 and 10 per cent (ENTSO-E online data; see also Commission 2007e:175). Most member states can therefore be described as largely self-sufficient in electricity supply (Eikeland 2011:14); today’s power transmission infrastructure hence rather prevents free flow of electricity in Europe, and thus a rational distribution of RES generation units and the ability to balance network fluctuations caused by renewables.

About 80 per cent of the bottlenecks in the European power system relate hence to the integration of renewables (ENTSO-E 2012:56). Increasing exchange capacity along national borders is hence a precondition for further decarbonisation of the European power sector. The aim of the reorganisation process should be the creation of a flexible and smart power pool of European size, where all power plants jointly balance the disturbance of one power station, regardless of its location (Battaglini et al. 2009). This has been regarded a convincing and economically viable possibility for better network stabilization (Booz&Co. 2013:86-87). Filling the gaps in the European cross-border grid infrastructure can therefore be interpreted as largely untapped options (Booz&Co. 2013:86-87) for near complete decarbonisation at moderate costs (Haller, Ludig & Bauer 2012:288).

But even though cross-border transmission capacity is generally low in Europe, it nevertheless largely varies along European borders, with well integrated parts on the one hand, and gaps and bottlenecks on the other. Thus, the question arises, where grid development is required and where the necessary adaptations are most urgent. The per area generation of intermittent electricity is helpful in this regard (see Fig. 2), as it reveals sharp differences between member states in their approach to renewables: Whereas some countries show only a moderate density of intermittent renewables, and intend to keep their numbers limited, other countries decided to integrate large numbers of these plants into their national systems (ECN 2011a). This will result in largely varying need for interconnectors with neighbouring countries.

Fig. 2: Intermittent RES MWh qkm

EU policy to develop the European power grid: From market integration to decarbonisation

Author: Thomas Sattich

Large scale integration of intermittent renewables beyond today’s levels requires the consecutive integration and common management of the still largely national power pools (Battaglini et al. 2009). So as to assure that decarbonisation of Europe’s power sector can continue, the EU is hence confronted with the challenge of implementing a policy to develop and integrate the European grid. The discussion of such a European approach to the power grid is older than one might think: Already since the 1920s a dualism can be observed between a top-down, supranational approach, and a gradual, bottom-up approach to the development of the cross-border power transmission infrastructure (Lagendijk 2008:80ff).

So far, however, the economic rational of utilities and the national perspective of policy makers obstructed initiatives to Europeanise grid development; in post-World War II Europe the gradual, case-to-case approach therefore largely prevailed over the idea of a top-down implemented European grid (Van der Vleuten&Lagendijk 2010:2045).

From the integration of power markets…

Only with the Single Market Program of the 1980s the European Community started to take a more assertive stance on energy related issues, and pursued a policy aiming at deeper integration of power markets and the development of a common carrier system for electricity (Commission 1988:72). One landmark in this regard is the Commission Working Document of 1988 (Commission 1988) which proposed to declare certain large-scale energy infrastructures as being of Community interest and hence entitled for special treatment. Since then a number of policy initiatives aimed at the development of a power transmission infrastructure that is functionally adequate for the creation/finalisation of a pan-European electricity market.

Understood as support for renewables, electricity transmission infrastructure had, however, only little prominence during the first years of EU involvement with this issue (Commission 2008:8; Lauber 2005:4). With the EU’s growing ambitions in climate policy and the growing numbers of renewables in the system, the question, how to reconcile the community’s environmental policy with the goal of creating an Internal Energy Market, and how the increase of renewables affects that market, became, however, a central one (Glachant et al. 2013:68-70).

…to the integration of renewables

Towards the end of the 1990s the Commission addressed this problem with a number of papers (Commission 1997, Commission 1998). These concluded that power transmission capacity was indeed insufficient (Eikeland 2011:20); the existing gaps were, however, still mainly regarded as barriers to cross country trade of electricity, not the integration of renewables. Given the low penetration of the power system with intermittent renewables at that time, and the generally low targets for their increase, the reason for this lack of technical analysis is obvious: Mechanisms for the support of renewables were perceived as support for the increase of RES generation capacity.

The environment, in which these renewables operate, was, however, largely neglected. Understood as the necessary prerequisite for the operation of renewables, power grids therefore had only low priority (see Fouquet&Johansson 2008; Haas et al. 2004). Only with regard to the most obvious cases such as far-off wind parks, these papers point out the need for the adaptation of power networks to the particularities of renewables and the additional costs for the installation and/or operation of renewables at specific sites (Commission 1997:29). Where the relation of electricity networks and renewables was discussed, it was mainly the free mandatory access to the grid (Commission 1998:8) at fair prices (Commission 1997:14).

Since the European Union set out for 12 per cent of electricity from renewable sources by 2010 (EWIS 2010:146), the promotion of RES has, however, gradually moved up the European agenda (Nilson, Nilsson & Ericsson 2009:4454): The existing gap between the importance of the power grid for the operation of renewables on the one hand, and the focus on economic support mechanisms for new (renewable) generation capacity on the other, started therefore to close in the following years (Commission 2000:48), and questions concerning the electricity transmission infrastructure such as the conditions for grid access, grid reinforcement, and charges to RES generators for use of networks obtained more attention (Jansen&Uyterlinde 2004:93):

A technology-specific approach for the support of renewables in general (Boasson&Wettestad 2010), and energy transmission infrastructure in particular, became hence an important element for the discussions how to integrate renewables (Jansen&Uyterlinde 2004:95). The Commission Green Paper on energy security from the year 2000 is a good example for this new emphasis. So are the two Directives 2001/77/EC and 2009/28/EC on the promotion of renewable energies, which clearly reflect the growing importance of the grid issue for renewables, and provide measures to improve the situation.

Finally, the Europe 2020 strategy (European Council 2010) and the Energy Roadmap 2050 (Commission 2011b) moved the focus of EU energy policy further towards sustainability and decarbonisation. In order to evaluate, whether these latest developments of EU energy policy and on electricity transmission infrastructure evolved to a consistent body of instruments which is suited to reach the decarbonisation of the power sector, a closer look at particular programmes is necessary.

EU instruments to develop the European electricity grid

Author: Thomas Sattich

European ambitions on the field of sustainability grew considerably during the last 15 years, finally culminating in the plan for (nearly) full decarbonisation. The development of energy systems technology did, however, not keep up with the growing ambitions. Neither did the deployment of new electricity transmission infrastructure in Europe. But no decarbonisation without the necessary electricity transmission infrastructure. Thus, in order to match technological developments and the deployment of new infrastructure with the ambitious sustainability and decarbonisation targets, the EU implemented a number of programmes to accelerate grid development.

In order to determine whether these measures are sufficient to achieve decarbonisation, this post describes and analyses in more detail what policies the EU implemented: Programmes which aim at better framework conditions for universal grid development, and instruments which aim at the development of specific parts of the European network are treated separately in this analysis. In order to identify gaps between what the sector needs to achieve decarbonisation, and the given EU policy, the overall approach of the European Union towards universal and specific grid development is discussed.

Instruments for universal grid development

In 20th century Europe vertically integrated power companies conducted the planning of the transmission infrastructure. The market position of these companies widely converged with the power transmission infrastructure. In an attempt to increase competition and to stimulate grid and market development, the European Commission therefore proposed full unbundling of network and generation/supply interests (Commission 2007c:6); this would guarantee the independence of transmission systems operators (Eikeland 2011:32), and hence provide new stimuli for grid development in a European, not national or regional context.

More cross-border interconnections and the integration of electricity markets were supposed to be the result (Von Koppenfels 2010:84). Unlike the proposal, the third legislative package for an internal (gas and) electricity market does, however, not provide full ownership unbundling, but offers different models which do not necessarily change the ownership, but only the management and supervision of transmission networks (Eikeland 2011:24-25). Whether these provisions indeed ensure the independence of transmission networks from supply interests remains hence to be seen (Dupont&Primova 2011:11; Helm 2014:30).

Yet unbundling is not the only European policy to develop favourable framework conditions for the development of the power grid: Several EU programmes aim at the exploration of new energy technologies, their market-maturity, and the stimulation of their (potential) markets. Together, these programmes can roughly be categorized in two groups: Top-down demand pull instruments that pull industry towards investments in innovative products, and bottom-up technology push instruments which push European industry towards European targets (Sattich 2014a).

Top-down demand pull

The two Directives on the promotion of renewables are important elements of European policy to stimulate demand for new infrastructure, because they provide that new installations producing electricity from renewable energy sources (should) have priority status in the power system. The passage from the 2001 Directive to the one from 2009 marks an important step in this regard: Whereas the obligation of TSOs to grant RES priority access and priority dispatch remained facultative in Directive 2001/77/EC (Article 7(1); EWIS 2010:146), priority access, dispatch, transmission and distribution became mandatory in Directive 2009/28/EC (Futterlieb&Mohns 2009:24).

The RES Directive from 2009 hence marks a veritable milestone regarding the legally binding commitment for grid development. Regarding the financing of infrastructure projects, the two RES Directives are equally important: Directive 2001/77/EC called member states to implement cost sharing mechanisms for the necessary grid reinforcements, including a mechanism that requires transmission system operators to bear part of the adaptation costs (Directive 2001/77/EC:Article 7(2); Jansen&Uyterlinde 2004:99); the same applies for Directive 2009/28/EC which provides that Member States shall require TSOs to ensure that appropriate grid measures to minimise the curtailment of electricity produced from renewable energy sources are taken (EWIS 2010:154).

Bottom-up technology push

With EU energy technology development programmes such as Intelligent Energy Europe I (IEE 2003-2006), II (IEE 2007-2013), and Horizon 2020 Secure, Clean and Efficient Energy (2014-2020), the European Union also attempts to foster the development of new energy technologies. Main focus of these programmes lies on (market) barriers that hamper the development of new and renewable energy technology, and the transition from demonstration projects to marketing (Decision No 1230/2003/EC). With a multiannual budget of originally 200 million EUR, the Intelligent Energy programme was, however, rather small and supported only a limited number of grid projects .

Yet, in view of the issue’s growing importance, the European Union stepped up its energy technology policy over the past years: Horizon 2020 disposes over an increased budget for energy related projects, and with the Institute for Energy and Transport the European Union also provides its own R&D infrastructure. Moreover, with the Strategic Energy Technology Plan (SET-Plan, see Commission 2006b) the European Union brought the two until then isolated elements of its energy technology policy – market up-take measures and support for basic research – together in one encompassing programme (Commission 2006a:5).

General aim of this SET-Plan is to reinforce international cooperation and the coherence between national, European and international energy research (Commission 2007d:9-11). The European Electricity Grid Initiative is one of the programme’s subcomponents and aims at the creation of an integrated R&D and demonstration network, so as to develop, demonstrate and validate the technologies to enable the transmission and distribution of up to 35 per cent of electricity from renewable sources by 2020, and to make electricity production completely decarbonised by 2050 (European Union 2010:4).

With an estimated multiannual budget of 2 billion EUR, the Grid Initiative is considerably bigger than other European instruments on the field. Due to a lack of coordination and a general lack of practical arrangements to foster interaction between the different research areas, the implementation of the SET-Plan remained, however, below expectations. Missing coordination between the Grid Initiatives and other areas seems to be particularly puzzling (Commission 2013b:8-9). Given these shortcomings, better coordination, financing and commitment of member states is under discussion.

Instruments for specific grid development

With the Priority Interconnection Plan (PIP) of 2007 the European Union reaffirmed its focus on the development of particular parts of the grid (Commission 2007b). This Plan sets out five priorities:

1) Identifying the most significant missing infrastructure and ensuring pan-European political support to fill the gaps;
2) appointing four European co-ordinators to pursue the most important priority projects;
3) agreeing a maximum of 5 years within which planning and approval procedures must be completed for projects of European interest;
4) examining the need to increase funding for European networks;
5) establishing a new Community mechanism and structure for co-ordinated network planning.

Debates about the need for new cross-border electricity exchange capacity in specific bottlenecks of the European grid, are, however, much older than the PIP: First policy papers addressed the issue already in 1988 (Commission 1988:28), and shortly after the signature of the Maastricht Treaty a limited number high priority trans-European projects have been endorsed and asked for rapid implementation (European Council 1994). It remained, however, unclear, how investments in these projects could be stimulated. Thus a debate began about the best lever for public intervention (see Commission 1993:79; and European Council 1994:27), and about the relative importance of two main obstacles for private sector investments in energy networks: Administrative constrains and market conditions.

In order to create favourable framework conditions for grid development in selected parts of the European network, member states agreed on a mix of measures on both issues (Decision No 1254/96/EC). This trans-European energy network programme (TEN-E) has a strong focus on market integration; cross-border power interconnection projects that contribute to the integration of renewables, and the transmission of the generated electricity to major consumption centres and storage sites are, however, also included (Regulation No 347/2013:Article 4). Moreover, TEN-E supports projects to integrate far-off and/or intermittent renewables (Regulation No 347/2013:Annex IV). The priority status for certain infrastructure projects hence does not only apply for interconnection projects necessary for market integration; projects necessary for the integration of renewables are equally entitled for TEN-E support.

TEN-E goes well beyond instruments such as market liberalisation and competition policy which to that date characterised the toolkit of European energy policy: Drawing on Lisbon treaty article 194 which requires member-states to interconnect energy networks, the EU concluded that new support measures for grid development were needed; the TEN-E programme hence does not only include a list of four Priority Electricity Corridors in different parts of the European continent (Regulation No 347/2013:Annex I), but provides particular projects in these corridors with priority status that entitles them for administrative and financial support.

Top-down administrative and market measures

In order to ensure rapid deployment of specific projects, the TEN-E guidelines aim at the reduction of administrative burdens (Justice and Environment 2013:2). One of the starting points in this regard is permit granting: In order to guarantee a process of three years and six months only (Regulation No 347/2013:Article 10(2)), member states are obliged to establish a competent authority responsible for all permit granting processes in a so called one-stop shop (Regulation No 347/2013:Article 8(1)). Moreover, projects of common interest shall be provided with the highest national significance (Regulation No 347/2013:Article 7).

In order to facilitate and speed up coordination between the various parties involved in the implementation of particular projects, the programme guidelines also provide for close cooperation between all relevant groups such as member states, national regulatory authorities, transmission systems operators, the European Commission etc. in regional groups (Justice and Environment 2013:3). Where a project of European interest encounters significant delays or implementation difficulties, the intervention of European coordinators is possible (Regulation No 347/2013:Article 6).

As an additional measure selected TEN-E projects are also entitled for financial support by the European Union (Meeus, Purchala & Belmans 2005:31): For projects which are not viable under the existing regulatory framework and the given market conditions, the TEN-E programme provides a yearly budget of 25 million EUR for tailor-made support in form of grants and financial instruments (Regulation No 347/2013:Article 14(1)), 20 million EUR of which are generally intended for the co-financing of feasibility studies. In this regard it is noteworthy that the TEN-E is increasingly guided by the idea that only projects of ‘European interest’ should get public support (Agt 2011:29).

Bottom-up market regulation

Such financial assistance is, however, exceptional and may not lead to any distortion of competition: According to the TEN-E guidelines market principles have the priority. In fact, TEN-E attempts to limit distortion of competition to a minimum; instead it focuses on regulatory disincentives to invest (THINK 2011:32-33), and the question, how to so organise the market for grid investments that investors can have confidence in the recovery of their costs (Helm 2014:31). Joint system development planning and the allocation of costs and risks of increasing cross-border interconnection are the answers of TEN-E (Commission 2007a:17).

The programme guidelines hence provide the development of a harmonised energy-system wide cost-benefit analysis as the basis for the allocation of investment costs related to particular projects that are not covered by tariffs for network users (Regulation No 347/2013:Article 12(1)). Moreover, where the investment in new cross-border interconnectors involves high primary risks (e.g. non-use and future) such that the investment would not take place, a number of (time-limited) exemptions provide project owners with a certain independence from the regulatory framework (Regulation No 714/2009:Article 17). TEN-E thus gives investors greater control over cash flow (Cuomo&Glachant 2013:18).

With better financing towards decarbonisation?

A densely interconnected European power grid is the necessary backbone of a decarbonised European power system. The European Union hence attempted to create a supportive environment for the development of a power transmission infrastructure which is capable of integrating renewables. Despite these efforts there seems, however, still much work left to do (Monti 2010:48): To this day the various EU programmes seem not to be yet powerful enough to stimulate the development of a power transmission system suitable for the aims of European energy policy (Agt 2011:30). The question therefore is, whether the efforts to develop a complex set of grid development programmes indeed resulted in a consistent and viable mix of instruments.

Some authors blame the Commission’s repeated focuses on specific projects on a bottom-up basis for the limited progress. Given the unbundling efforts of the past years, one might come to this conclusion; moreover it is true that the European Union historically preferred a bottom-up approach to energy policy. Yet unbundling concerns universal, not specific grid development. In view of the largely varying need for interconnection, increasing the interconnection capacity at specific chokepoints is one of the obvious starting points. EU policy towards such single projects changed, however, largely over the past years, and seems to be on the way towards a top-down approach; TEN-E in particular is characterised by a distinct top-down approach (Agt 2011:28-29).

According to Helm (Helm 2014:30-31), grid development does also suffer from the open question how to so organise markets in a way that investors can have confidence that costs will be recovered. The European Commission came to the same conclusion and thus called for a new approach to the planning, construction and operation of electricity transmission infrastructure (Commission 2010b). In its work programme the EU therefore sets out to analyse the optimum balance between public and private financing for projects of European interest which have no or poor commercial viability, and to develop innovative funding mechanisms for the coverage of main risks that improve the investment climate (Commission 2010b).

The EU is hence increasingly inclined to (co-) finance or guarantee the finance of infrastructure projects of European interest (Agt 2011:29). With the European Energy Programme for Recovery, for example, the European Union channelled financial resources from the EU budget directly to selected energy infrastructure projects (Commission 2013b). The connection and integration of renewable energy resources is among the five objectives of this programme (Regulation No 663/2009:Article 4). With a budget of 904 million EUR for grid interconnection measures and 565 million EUR for offshore wind energy , the integration of invested sums are considerable compared to the financial resources of the TEN-E programme.

Compared to the overall investment needs of about 400 billion EUR for distribution networks and smart grids and EUR 200 billion for transmission networks and storage (Tagliapietra 2013), this sum can, however, also be interpreted as limited support (depending on the point of view). Under the Europe 2020 flagship initiative on resource efficiency (Commission 2011a), the European Union therefore developed the Energy 2020 strategy: Support for energy infrastructure projects and the upgrade of Europe’s networks for the integration of renewables have a high priority in this strategy. Increasing certainty for investment and innovation (in grids) is one oft he key elements of this initiative (Commission 2011a).

The Connecting Europe Facility (CEF) is the result of this new reasoning on the support for European energy infrastructure (Regulation 1316/2013). With a multiannual budget of 5.85 billion EUR this new institution supports implementation of energy infrastructure projects defined as common interest (Regulation 1316/2013:Article 5). This support will mostly be granted in form of so called risk sharing instruments for project companies (Annex I, Part 2). The Connecting Europe Facility hence aims at reducing the financial risks for certain infrastructure projects. Greenhouse gas reduction is one of two general objectives in this regard (Article 3); more precisely, the CEF aims at increasing the amount of renewable electricity transmitted from generator to consumption centres/storage sites, and at avoiding curtailment of (intermittent) RES; moreover, the programme includes support for the deployment of smart grids (Article 4).

With collaborative transmission planning towards 2050?

Author: Thomas Sattich

Decarbonisation will change the European power sector greatly. Deeper integration of power networks is one key element for the success of this agenda. This implies the relocation of power generation capacities to new sites, shared cross-border use of generation capacities via integrated networks, and a more efficient allocation of power generation units in Europe; in turn this would result in the reduction of capital-intensive excess capacities to a minimum (BMWi 2013:21), thereby saving large financial means for other investments (Siemens 2013).

But a policy of deeper grid integration will also lead to increasing dependency on neighbouring countries. Any initiative towards more renewables therefore requires great sensitivity towards possible economic, technical and political side effects, and a high level of mutual trust. Unilateral steps in energy policy on the other hand undermine any progress in European energy policy, and should therefore be avoided. The latter potentially is one of the most serious constraints for any further increase in intermittent renewables in the European Union.

With the varying density of renewable energy resources and uneven distribution or intermittent RES stations in a particular area, the need for deeper interconnection varies, however. It seems therefore certain that the costs and benefits resulting from a policy to increase intermittent renewables by a policy of deeper grid integration would be unevenly distributed among the different member states involved (Sattich 2014). A collaborative mechanisms for co-ordinated network planning as well as a sound cost sharing mechanism are thus the prerequisites of a successful decarbonisation policy.

In the European legislations there are first example for such cost-sharing mechanisms, and with the Ten-Year Network Development Plan a (non-binding) instrument exists which brings a large number of stakeholders together for collective grid planning (Regulation 714/2009:Article 8). Given the critique of the EU’s focus on a bottom-up approach towards energy policy (even though it is only partly justified), it could be beneficial for the European Union to think outside the box in this regard, and follow working grid planning procedures to develop its own grid planning tools accordingly.

The Renewable Energy Transmission Initiative (RETI) is an interesting candidate in this regard: A stakeholder process charged with developing a conceptual plan for expanding the Californian electricity transmission network to provide access to renewable energy resources necessary to meet the goal of 33 per cent of electricity by 2020 (Olsen, Byron & DeShazo 2012:837). Key feature of the RETI process is the collaborative identification of geographic regions having high densities of best quality resources, and the minimisation of transmission facilities necessary to access these renewable energies to meet state goals (Olsen, Byron & DeShazo 2012:837).

In a transparent, open and collaborative fashion, the stakeholders estimated and agreed on the estimated costs of developing RES resources, and determined the aggregate capacity and location of new transmission lines to be built: Given the diverse interests and perspectives of the stakeholders involved in the process, this required both compromise and willingness to proceed at controversial issues (Olsen, Byron & DeShazo 2012:842). RETI therefore used principles of least-regrets planning to guide its work (Olsen, Byron & DeShazo 2012:840). Sounds like something Europe could be in need of, doesn’t it?

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