Energy Infrastructure Package Regulation on guidelines for trans-European energy infrastructure & Connecting Europe Facility European Commission DG Energy Internal Market I: Networks and Regional initiatives
CONTENT • Do we need more infrastructure in Europe? • Energy Infrastructure Guidelines • The Connecting Europe Facility • Project identification preparatory phase 2 Energy
Eliminate bottlenecks Security of Supply: 21.900 km Renewable Internal Energy Energy Sources Market: Integration: 18.200 km 44.700 km Energy
Gas matters January 2009 gas crisis | 4 Energy
The investment challenge 14.0 Estimated investment need is EUR 200bn until 2020 (~20bn/y) 4.2 About half of this investment is 9.1 expected to be hindered by: 3.3 • Permit granting delays 9.8 • Regulatory obstacles 5.8 • Financing difficulties TSO TSO Invest- Investment ment Forecast ~1% of electricity bill Average 2005 - 2010 - 2020 p.a. 2009 p.a. Natural Gas Electricity Energy Source: Study by Roland Berger, 2011
The legislative proposals of the package Three sectorial infrastructure policy proposals Connecting Europe Facility: Budget EUR Energy – 9.12bn Transport – 30bn ICT – 9.1bn Energy
Revision of the TEN-E policy Process to identify projects of common European interest, with involvement of all stakeholders Benefits Accelerated permit Improved Financial support granting Regulatory treatment Financial One Cost 3.5 Participa Incentives instru- Grants stop allocation years tion ments shop Energy
Priority corridors: electricity North-South Northern interconnections Seas Offshore + Electricity highways and smart grids Western EU grid North-South interconnections BEMIP CEE Energy
Priority corridors: gas, oil, CO2 transport North-South Southern gas + carbon dioxide transport infrastructure interconnections corridor Western EU North-South interconnections BEMIP CEE & oil Energy
Process Project Regional European ENTSOs ( G/E ) NRAs ( G/E ) ACER ( G/E ) promoters Groups Commission • Prepare • Submit • Check • Evaluate • Opinion • Adopt TYNDPs for projects application projects • Cross- Union-wide gas and • Criteria of criteria • Rank regional list of • CBA • Adopt projects of electricity • Cross- consistency border regional lists common relevance interest (no ranking) Energy
Criteria as proposed in the Guidelines General criteria • Specific criteria • Contributes to the • Market integration implementation of the • Security of supply infrastructure priorities Diversification Secure system operations • Economic, social and • Sustainability environmental viability Integration of RES • Involves at least two Member GHG avoidance States: • Cost-benefit analysis • Cross-border (in TYNDP by ENTSOs) infrastructures • Infrastructure with • + urgency, number of MS, significant cross-border complementarity and territorial impact cohesion Energy
Permit granting – Regime of common interest • Priority status for PCIs • Most preferential treatment in Member States • Streamlining of EIA procedures • Competent Authority to manage permit granting process • 3 and a half years time limit for the permit granting decision • Increased transparency and enhanced public participation Energy
Regulatory framework - measures • Energy system-wide cost-benefit analysis • Proposal by ENTSOs, ACER opinion, Commission approval • Enabling investments with cross-border impact: • Cross-border cost allocation • NRA joint decision on investments and cost allocation • ACER decision if no agreement • Long-term incentives for investment: • Obligation on NRAs to grant appropriate risk-related incentives • ACER guidance on best practices of NRAs and methodology Energy
Financing – Connecting Europe Facility 2014-2020 • Eligibility criteria (in guidelines): • Grants for studies and financial instruments – available to all PCIs • In exceptional cases, grants for works for PCIs where: – CBA shows positive externalities – Commercially not viable – Cost-allocation decision done Energy
Other measures • Operational coordination • European coordinators 15 Energy
Connecting Europe Facility 2014-2020 A package for growth and jobs • Modernizing the EU budget in support of growth and jobs during the recession • EU added value of CEF support to projects of common interest • "Small" investment of € 9.12bn to leverage € 200bn of large-scale investment • € 200bn of investment in trans-European energy networks could generate +0.42% of growth and 410,000 additional jobs in 2011- 2020 • Attracting investors to the energy infrastructure in Europe Energy
Scope of Financial Instruments Financial Instruments as a tool in public policy: Commercially viable tax, regulate promote (internalise business Externalities) 0 CEF support through avoid grants 0 Delivering public goods Energy
Credit ratings S&P Moody's Fitch AAA Aaa AAA Investment-grade. AA+ Aa1 AA+ AA Aa2 AA Many investors can AA- Aa3 AA- only buy such A+ A1 A+ A A2 A bonds A- A3 A- BBB+ Baa1 BBB+ BBB Baa2 BBB BBB- Baa3 BBB- BB+ Ba1 BB+ BB Ba2 BB Non- BB- Ba3 BB- B+ B1 B+ investment B B2 B grade or high B- B3 B- CCC+ Caa1 CCC yield bonds CCC Caa2 CC CCC- Caa3 C CC Ca DDD SD C DD D D Energy
Equity instruments Providing risk capital (equity) via investment funds Why? Balance sheet constraints of companies developing projects (e.g.TSOs) Low appetite to invest in greenfield (i.e. new asset creation) investments Increasing risk aversion and Pressures on returns (subordination?) Example of the 2020 European Fund for Energy, Climate Change and Infrastructure aka Marguerite Fund Core Sponsors: EIB, CDC (France), CDP (Italy), ICO (Spain), KfW (Germany) and PKO (Poland)) are backing this Fund; other core investors include CDG (Portugal), Bulgarian Development Bank (Bulgaria), BGK (Poland), SID Banca (Slovenia), NTMA (Ireland), and Nordic Investment Bank (NIB) Equity stakes in mostly greenfield; TEN-T, TEN-E and RES Energy
Debt instruments • Loan and guarantees facilitated by risk- sharing with financial institutions • Enhancement to Project Bonds • Specialised/adapted loans and guarantees (e.g. longer maturity) Energy
Europe 2020 Project Bond Initiative A pilot phase in 2012-2013 • Project bonds to be an integral part of the CEF 2014-2020 • Past experience (especially LGTT) shows time lag for banks and project sponsors to incorporate complex new ideas into their financing structures • In the case of project bonds also have to allow investors (pension funds, insurers) time to analyse and adapt asset allocation • Propose a pilot in order to start this phase now rather than in 2014 • Funded by reallocating up to EUR 200 million from TEN-T, up to EUR 10 million from TEN-E and up to EUR 20 million from CIP ICT budget lines • Aim to support 5-10 projects in transport, energy and/or ICT Energy
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