Study on regulatory incentives for investments in electricity and gas infrastructure projects

Article 13 of the European TEN-E regulation sets out that if a project promoter incurs higher risks for the development, construction, operation or maintenance of a project of common interest (PCI) than comparable investments, and the project’s net positive impact is confirmed by cost-benefit analysis (CBA), then appropriate incentives shall be granted.

PCIs can be generally described as major energy infrastructure projects that contribute to the timely development and interoperability of European energy networks. As a consequence, PCIs are typically cross-border projects, meaning that they involve investments in multiple countries or their benefits will accrue to multiple countries. (Part of) PCIs’ benefits will regularly consist of increased security of supply or increased competition in supply, and may therefore be difficult to internalize. Finally, PCIs may be technologically challenging, for instance electricity network investments to connect offshore wind farms.

Given this background, the European Commission has asked AF-Mercados EMI and REF-E to look into possible risks and existing incentive and regulatory frameworks. They have investigated how specific features of PCIs impact the risks faced by project promoters, and may therefore justify special regulatory treatments. This risk dimension is crucial as it may significantly impact the financing cost of the project and thereby the project’s viability.

AF-Mercados EMI and REF-E have also investigated potential regulatory incentives or measures to either reduce the project promoter’s risk or efficiently reward the project promoter for bearing the risk.

In particular, the researchers have been asked by the European Commission to conduct the following four tasks:

• Take an inventory of possible risks;
• Identify a common methodology or criteria to establish whether a PCI faces higher risks than comparable investments;
• Identify best-practices for regulatory incentives; and
• Make recommendations for guidelines.