A Contestable Approach to Financing Critical Interconnection Across Europe at the Scale and Pace Needed
This policy brief details a contestable approach to interconnector investment aimed at introducing new sources of capital to ensure a robust and secure transmission network in Europe. Greater interconnection capacity will also help to meet Europe’s renewable targets more cost-effectively through the exploitation of areas of high-quality renewable resources and reduced curtailment, while the ability to balance energy and demand over wider areas will ease the integration of renewable capacity. To achieve these goals, the European Commission estimates that EUR 105 billion in new interconnector capacity will be needed by 2020, while available funding is approximately EUR 5.6 billion. The contestable approach aims to fill this gap by allowing both incumbent transmission system operators and private investors to compete in a reverse auction to develop transmission projects identified as ‘projects of common interest’ by the Commission. Author Phil Baker outlines the current approaches to funding interconnectors, both of which present challenges. He also presents a structure for implementing the contestable approach, and highlights the benefits of introducing new sources of capital into the interconnector market.