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Study on comparative review of investment conditions for electricity and gas Transmission System Operators (TSOs) in the EU

Febrero 2016

Study for the DG Energy of the European Commission

Following participation to tendering organised by DG Energy of the European Commission, BearingPoint and Microeconomix were awarded a comparative study on the investment conditions for electricity and gas Transmission System Operators in the EU. The study was carried out in 2015 through an in-depth analysis of the situation in fourteen selected Member States. In each Member State, extensive exchanges were conducted with gas and electricity TSOs and National Regulatory Authorities. The advancement and the results of the study were discussed periodically within a Steering Committee led by DG Energy. Participating to the Steering Committee were the study team, ENTSO-E, ENTSO-G, ACER, Marguerite Fund, European Investment Bank, INEA, and Prof. Jean-Michel Glachant from the Florence School of Regulation. The study resulted in an extensive report on investment conditions in the European Union, whose public version was released in January 2016.

This study aims to assess the investment requirements of the European (gas and electricity) European Transmission System Operators (TSOs) in relation to their financing capabilities. Indeed, the Ten-Year Network Development Plans for gas and electricity have identified a crucial need for upgrading and expanding the energy transmission networks, and the corresponding TSOs face the challenge of investing tens of billion euros before 2030. Thanks to a simulation model, we assess the impact of the planned investments on the financial health of 39 TSOs present in 14 EU Member States.

Over the 2015-2024, we identify that part of TSOs which face strong investments and Regulatory Asset Base increase will need an adaptation of their financial behaviour and the implementation of new financing tools. In another group of TSOs, the wave of investments should not shift financial ratios to non-sustainable levels.

Beyond pure financing issues, we look into the overall characteristics and factors which increase or lower the ability of TSOs to attract sufficient investments. Overall, TSOs are in a favourable position fostered by the low levels of the interest rates. However they face several barriers to investments, notably concerning the regulatory frameworks applied. Investors are deterred by regulatory issues in terms of stability, cost recoverability and flexibility. To cope with these barriers, we identify and analyse a series of best practices and recommendations.

We complete the study by analysing the impact of TSO investment on final user tariffs, hence assessing the risk of rejection of the investments due to high increases in tariffs. Our analysis shows that a clear increase in transmission tariffs will be observed – especially in electricity – but that the final impact on the end-user should remain limited due to the low weight of transmission in the energy bill and the benefits that the new investments should bring, in particular regarding commodity prices.

Co-authors: Armand Jipner (Bearing Point), Louis Gaillot Drevon (Bearing Point).

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