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

Energy

• Do we need more infrastructure in Europe?

• Energy Infrastructure Guidelines

• The Connecting Europe Facility

• Project identification preparatory phase

CONTENT

2

Energy

Eliminate bottlenecks

Security of Supply:

21.900 km

Internal Energy Market:

18.200 km

Renewable Energy Sources

Integration: 44.700 km

Energy

| 4

Gas matters

January 2009 gas crisis

Energy

The investment challenge

Source: Study by Roland Berger, 2011

Estimated investment need is

EUR 200bn until 2020 (~20bn/y)

About half of this investment is

expected to be hindered by:

• Permit granting delays

• Regulatory obstacles

• Financing difficulties

5.8

4.2

9.1

9.8

14.0

3.3

Natural Gas Electricity

TSO

Investment Average 2005 -

2009 p.a.

TSO Invest-

ment Forecast 2010 - 2020 p.a.

~1% of electricity bill

Energy

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

Accelerated permit granting

Improved Regulatory treatment

Financial support

Benefits

3.5 years

One stop shop

Incentives Cost

allocation

Financial instru-ments

Grants Participa

tion

Energy

Priority corridors: electricity

Northern Seas Offshore grid

North-South interconnections Western EU

BEMIP

North-South interconnections CEE

+ E

lectr

icity h

ighw

ays a

nd s

mart

grids

Energy

Priority corridors: gas, oil, CO2 transport

North-South interconnections Western EU

BEMIP

North-South interconnections CEE & oil

Southern gas corridor

+ c

arb

on d

ioxid

e t

ransport

infr

astr

uctu

re

Energy

ENTSOs (G/E) Project

promoters NRAs (G/E)

Regional Groups

ACER (G/E) European

Commission

• Prepare TYNDPs for gas and electricity

• Submit projects

• Criteria • CBA

• Check application of criteria

• Cross-border relevance

• Evaluate projects

• Rank • Adopt

regional lists

• Adopt Union-wide list of projects of common interest (no ranking)

• Opinion • Cross-

regional consistency

Process

Energy

Criteria as proposed in the Guidelines

General criteria

• Contributes to the implementation of the infrastructure priorities

• Economic, social and environmental viability

• Involves at least two Member States:

• Cross-border infrastructures

• Infrastructure with significant cross-border impact

• Specific criteria

• Market integration

• Security of supply Diversification

Secure system operations

• Sustainability Integration of RES

GHG avoidance

• Cost-benefit analysis

(in TYNDP by ENTSOs)

•+ urgency, number of MS, complementarity and territorial 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:

Delivering public goods

Commercially viable

avoid

tax, regulate (internalise Externalities)

support through grants

0

0

promote business

CEF

Energy

Credit ratings

S&P Moody's Fitch

AAA Aaa AAA

AA+ Aa1 AA+

AA Aa2 AA

AA- Aa3 AA-

A+ A1 A+

A A2 A

A- A3 A-

BBB+ Baa1 BBB+

BBB Baa2 BBB

BBB- Baa3 BBB-

BB+ Ba1 BB+

BB Ba2 BB

BB- Ba3 BB-

B+ B1 B+

B B2 B

B- B3 B-

CCC+ Caa1 CCC

CCC Caa2 CC

CCC- Caa3 C

CC Ca DDD

SD C DD

D D

Investment-grade.

Many investors can

only buy such

bonds

Non-

investment

grade or high

yield bonds

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