Experience with interconnection merchant projects under regulation (EC) 1228/2003: Perspectives for regulation (EC) 714/2009
Kessel, C. Meeus, Leonardo Schwedler, C.
Kessel, C.
Meeus, Leonardo
Schwedler, C.
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Publication Type
Journal article
Editor
Supervisor
Publication Year
2011
Journal
Utilities Law Review
Book
Publication Volume
18
Publication Issue
4
Publication Begin page
147
Publication End page
155
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Abstract
Since the start of the liberalisation process, the EuropeanUnion has tried to create an effective internal market inelectricity. The establishment of an effective internal market is regarded as being of particular importance in order to foster social welfare by, for example, realising efficiency gains, competitive prices and higher standards of service. Moreover, it is intended to contribute to security of supply, system integrity and environmental protection within the common market. In a first effort to create an internal electricity market,the Commission implemented Directive 96/92/EC, which was, in 2003, replaced by Directive 2003/54/EC3(‘Directive 2003/54’) These Directives laid down a framework of common rules for the creation of an internal electricity market. In particular, these Directives stated that non discriminatory, transparent and fairly priced network access including cross-border flows of electricity between Member States (so-called ‘Third Party Access’, ‘TPA’) was an essential precondition for effective competition. In order to ensure a competitive environment, Regulation (EC) 1228/2003 (‘Regulation 1228/2003’) was adopted, in which more detailed measures relating to access to the network for cross border exchanges in electricity were laid down. Regulation 1228/2003 (which was part of the so-called second generation legislation) will be replaced on 3 March 2011 by Regulation (EC) 714/2009 (‘Regulation 714/2009’)which in turn is part of the third generation legislation (the so called ‘Third Package’),which entered into force on 3 September 2009. The key principle in the process of liberalisation is the obligation of Member States to open their markets and to ensure TPA on electricity networks. Directive 2003/54, therefore, specifically obliges Member States to ensure non discriminatory TPA by enforcing fair tariffs and terms and conditions for the transportation of electricity especially vis-à-vis the national transmission system operators (‘TSOs’).It requires harmonised tariff mechanisms, harmonised cross-border transmission principles and common rules for capacity allocation on interconnections between national transmission systems. In addition, in order to ensure the long-term adequacy of the provision of electricity in Europe, under Directive 2003/54 the TSOs are to a certain extent obliged to invest in new infrastructure. This obligation may also require the construction of linkages between the transmission systems within the different Member States (‘interconnectors’). In return, compensation for the ensuing costs must be included in the regulated tariffs. Directive 2003/54 expressly states that tariffs must allow for the necessary network investments in order to create a sophisticate , well-connected and well functioning internal electricity market.10 However, in addition to these mandatory investments by TSOs, the European Union also seeks to attract private (or at least voluntary) investment in order to accelerate the establishment of interconnections between the national grids. An essential tool in encouraging private investment in new interconnector capacity is the case-by-case assessment under Article 7 of Regulation 1228/2003. This provision allows for the regulators involved (that is, the two regulators of the areas that are being interconnected and the European Commission) to relax the regulatory requirements set out by Directive 2003/54 and Regulation 1228/2003 (especially with regard to TPA) to a certain degree where it is appropriate in order to encourage investments by third parties which are separate from the existing TSOs at least in terms of their legal form. The procedure ultimately leads to a so-called exemption, which will specify those regulatory provisions which will – exceptionally – not be applicable for a new interconnector for the period of time corresponding to the expected pay back time of the project. Private investments will thereby be encouraged and, in fact, allowed, which is triggered by the intention to realise a reasonable profit and to compete with the largely unchallenged existing TSOs (‘merchant projects’). The aim is to utilise private interests in order to contribute to the overall development of the electricity network. So far, four merchant projects have been awarded such an exemption under Regulation 1228/2003, namely, interconnectors between Estonia and Finland (Estlink), between England and the Netherlands (BritNed), between Ireland and Wales (East-West Cables), and between Italy and Austria (Arnoldstein – Tarvisio).11 A fifth project, an interconnector between Norway and Germany (NorGer), is currently pending review of the national exemption decision by the Commission. A closer look reveals that the details of these projects as well as the exemptions granted differ greatly. This article therefore seeks to summarise the experiences gathered with regard to the application of Article 7 of Regulation 1228/2003 so far, and to provide a brief overview of the merchant projects triggered under the current regulatory framework.
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Energy Markets