First series of cross-border cost allocation decisions for projects of common interest : main lessons learned

QM-02-15-058-EN-NFollowing the procedure introduced by the TEN-E Regulation, thirteen power and gas infrastructure projects from the list of “projects of common interest” have recently received a cross-border cost allocation decision. These decisions include twelve coordinated decisions by national regulatory authorities and one decision by the Agency for the Cooperation of Energy Regulators (ACER). • For most projects, the countries that are expected to apply part of the investment on their own territory are also a net beneficiary of the project. In one case, the cost benefit analysis indicates that the costs clearly outweigh the benefits for one of the involved countries (i.e. net loser). The decision has been to compensate this country. In three cases, countries have agreed to a cross-border cost allocation with compensation, even if none of the involved countries is expected to be a net loser. • In this brief, we determine the extent to which this first series of cross-border cost allocation decisions complies with the TEN-E Regulation, ACER’s Recommendation, and FSR’s recommendations. We find that the expected improvement in cross-border cost allocation decisions is ongoing, but the gap between practice and recommendations remains. • To reduce the gap, we have updated our recommendations into six lessons learned: [1] revisit the significance threshold and the interaction with the Connecting Europe Facility, [2] promote the good practice of using market tests to improve the cross-border cost allocation decision, [3] require a complete cross-border cost allocation decision, [4] continue to use the results of the cost-benefit analysisto facilitate innovative cross-border cost allocation decisions, [5] continue coordinating these decisions for strongly interacting projects, and [6] start including binding commitments in the decisions, especially with respect to the commissioning date

Gas Balancing Rules Must Take into account the Trade-off between Offering Pipeline Transport and Pipeline Flexibility in Liberalized Gas Markets

This paper analyses the value and cost of line-pack flexibility in liberalized gas markets through the examination of the techno-economic characteristics of gas transport pipelines and the trade-offs between the different ways to use the infrastructure: transport and flexibility. Line-pack flexibility is becoming increasingly important as a tool to balance gas supply and demand over different periods. In the European liberalized market context, a monopolist unbundled network operator offers regulated transport services and flexibility (balancing) services according to the network code and the balancing rules. Therefore, gas policy makers should understand the role and consequences of line-pack regulation. The analysis shows that the line-pack flexibility service has an important economic value for the shippers and the TSO. Furthermore, the analysis identifies distorting effects in the gas market due to inadequate regulation of line-pack flexibility: by disregarding the fixed cost of the flexibility in the balancing rules, the overall efficiency of the gas system is decreased. Because a full market based approach to line-pack pricing is unlikely, a framework is presented to calculate a cost reflective price for pipeline flexibility based on the trade-offs and opportunity costs between the right to use the line-pack flexibility and the provision of transport services.Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research

Gas Market Distorting Effects of Imbalanced Gas Balancing Rules: Inefficient Regulation of Pipeline Flexibility

This paper analyzes the value and cost of line-pack flexibility in liberalized gas markets through examination of the techno-economic characteristics of gas transport pipelines and the trade-offs between different ways to use the infrastructure: transport and flexibility. Line-pack flexibility is becoming increasingly important as a tool to balance gas supply and demand over different periods. In the European liberalized market context, a monopolist unbundled network operator offers regulated transport services and flexibility (balancing) services according to the network code and balancing rules. Therefore, gas policy makers should understand the role and consequences of line-pack regulation. The analysis shows that the line-pack flexibility service has an important economic value for the shippers and the TSO. Furthermore, the analysis identifies distorting effects in the gas market due to inadequate regulation of line-pack flexibility: by disregarding the sunk costs of flexibility in the balancing rules, the overall efficiency of the gas system is decreased. Finally, the analysis demonstrates that the actual costs of line-pack flexibility are related to the peak cumulative imbalance throughout the balancing period. Any price for pipeline flexibility should, therefore, be based on the related trade-off between the right to use the line-pack flexibility and the provision of transport services

Shift, not drift : towards active demand response and beyond

Each semester the THINK project publishes two research reports based on topics proposed by the European Commission.Topic 11QM-01-13-151-EN-CQM-01-13-151-EN-NNowadays, the European electricity systems are evolving towards a generation mix that is more decentralised, less predictable and less dispatchable to operate. In this context, additional flexibility is expected to be provided by the demand side. Thus, how to engage consumers to participate in active demand response is becoming a pressing issue. This THINK report assesses how to realise this shift towards active consumers using a consumer-centred approach and does so from the perspective of contracts. On this basis, we recommend measures to be undertaken in the short-term, during the transition and in the long term, respectively, to achieve a full take-off of active demand response. The THINK project (2010-2013) is funded by the European Commission under the Seventh Framework Programme, Strategic Energy Technology Plan. (Call FP7-ENERGY-2009-2, Grant Agreement no: 249736). Coordinator: Prof. Jean-Michel Glachant and Prof. Leonardo Meeus, Florence School of Regulation, Robert Schuman Centre for Advanced Studies, European University Institute

D7.4 economic framework for a meshed offshore grid

Work Package 7 (WP7) of the Progress on Meshed HVDC Offshore Transmission Networks (PROMOTioN) Horizon 2020 project focuses on various legal, financial and economic aspects of developing an integrated offshore infrastructure. Task 7.2 focuses on the development of an economic framework for the offshore grid in terms of three building blocks, namely: planning, investment, and operation. 1. Offshore grid planning comprises three topics, namely: Cost-Benefit Analysis (CBA) methods, onshoreoffshore coordination, and public participation. 2. Offshore grid investment comprises four topics: cooperation mechanisms for renewable support, transmission tariffs, investment incentives, and Cross-Border Cost Allocation (CBCA) methods. 3. Offshore grid operation focuses on the balancing mechanism in the offshore wind context. This final report extends our intermediate report with the addition of three new topics: incentives, CBCA and the balancing mechanism. The remaining chapters are identical to the intermediate report. In this section, we provide a summary of the research that has been undertaken so far and the main conclusions from our analysis.This result is part of a project that has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 691714

Economic principles for coordinated reactions to gas supply disruptions : first appraisal of the 2016 package on sustainable energy security

The rationale for the cooperation and coordination of reactions to supply disruptions can be based on political motives or economic motives; even if the rationale is political, coordinated reactions require the implementation of two economic principles. By using economic incentives for as long as possible and by minimising losses after economic incentives have been interrupted, countries commit to maximise the economic value of gas consumption and that creates common ground to support solidarity. While the proper implementation of both principles is necessary, the implementation from before the 2016 sustainable energy security package has several shortcomings; some of these issues are addressed in the new package. There is, however, room for additional improvements beyond the proposals in the package to better use economic incentives for activating demand side resources, to make the criteria for interrupting economic incentives firm and transparent such as a price cap, to orderly rank resources when economic incentives have been interrupted, and to make those on the receiving end of solidarity anticipate the end of solidarity as soon as possible

The role of the EU and ACER to ensure an adequate regulatory framework for projects of common interest

QM-AI-14-005-EN-CQM-AI-14-005-EN-N• Projects of common interest are important high-value projects for achieving EU energy and climate policy objectives. To the extent that these projects have higher risks, we need to make sure that the regulatory frameworks also incentivize investment at the high end of the risk spectrum. • In this brief we discuss whether an adequate framework for projects of common interest implies moving towards a dedicated regulatory framework, concluding that this is not necessarily necessary. • Some Member States might prefer to apply their default regulatory framework to projects of common interest. This approach avoids the additional costs of administering another framework. However, the conventional default framework provides the same return for all infrastructure investment, implying a risk of underpaying for high-risk investment and overpaying for low-risk investment. • Other Member States might prefer to apply a dedicated regulatory framework for important infrastructure investment to projects of common interest. These dedicated frameworks allow dealing with underpaying for important investment as well as mitigating the risk of overpaying by adjusting incentives to the value and risk of a project. • In both cases, the EU and ACER have important roles to play in ensuring that the regulatory framework applying to projects of common interest is adequate. Their roles could include assessing the applicable frameworks, assisting NRAs with multi-jurisdictional coordination, ensuring dedicated frameworks for investment of national importance apply also to projects of common interest, and assisting NRAs on a voluntary basis with performing case-by-case assessments

The regulatory experience of Italy and the United States with dedicated incentives for strategic electricity transmission investment

Available online: 6 May 2017There is a trend in regulatory practice towards providing dedicated incentives for strategic investments. Italy and the United States have the longest experience with authorizing returns and risk-mitigating incentives that deviate from standard regulatory treatment for policy purposes. In these countries, the regulatory incentives are based on a case-by-case assessment of capital projects. We find that the Italian scheme is simpler, which reduces administrative costs. The U.S. scheme is more advanced in the case-by case assessment. Even though dedicated incentives may be controversial, our analysis of both experiences shows that, notwithstanding significant learning costs, both schemes have facilitated substantial financial investment in strategically important infrastructure. (C) 2017 Elsevier Ltd. All rights reserved

Cost-benefit analysis for gas infrastructure projects

QM-AI-14-003-EN-CQM-AI-14-003-EN-N• To reinvigorate the building of new gas infrastructure in Europe, the Euro­pean Union has introduced ‘projects of common interest’ (PCI) in its Energy Infrastructure Package. These PCIs will be evaluated and selected on the basis of systematic cost-benefit analysis (CBA), a method that is novel for the Euro­pean gas industry. A consistent gas-CBA method has to be designed by ENT­SOG, who published a preliminary draft method for public consultation on 25 July 2013, followed by a formal draft CBA method on 15 November 2013. • This Florence School brief summarizes our findings and recommendations for improvement of the CBA method. • The time horizon of the CBA can be controversial. Projects can be evaluated against different time horizons and these horizon options affect the relative ranking of the projects. A single reference point for 20-25 years is best prac­tice for the time horizon for infrastructure projects and should be used for gas CBA. • Project interaction affects the net economic benefits of projects that are com­plementary or competing with other proposed infrastructure projects. Iden­tification of interaction can be treated within the gas-CBA method, providing important information for ranking individual or clustered projects. • The monetization model can and must be internally consistent with regard to physical and commercial relations that govern the European gas system. The model output needs to be aligned with a reduced list of significant effects and the model input needs to be monitored. • Ranking should be primarily based on the monetization with transparent ad­justments where justified; ENTSOG should provide guidance to the Regional Groups on how the CBA method has been conceived for selecting projects

Energy services innovation at the edges of distribution grids: A business model perspective

This work deals with innovative business models of existing companies that offer energy services at the edges of distribution grids. Our mapping is based on information on over 20 businesses collected by the Horizon 2020 project STORY and other projects participating in the EU’s BRIDGE initiative using a reporting template that simplifies and extends the well known business model canvas by Osterwalder and Pigneur (2010). Our method is therefore compatible to the mapping that has been done e.g. by Burger and Luke (2016), who have mapped business models for demand response, for solar PV and for storage systems, but differs in the choice of archetypical mapping dimensions