The Commission has called for proposals aimed at ending national energy isolation and eliminating energy bottlenecks in order to complete the energy internal market. To create a competitive, secure and sustainable European-wide energy market fit for increased energy demand and a rising supply of renewables will require major investments. According to EU estimates around €104 billion is needed for transmission projects to increase capacity and upgrade Europe’s ageing electricity infrastructure, and €35bn is earmarked for the cross-border interconnection projects, so vital for energy balance, electricity trading and security of supply.
The EU’s “Connecting up Europe Facility” worth around €5.8 billion is an ambitious plan to create a fully integrated competitive unified pan-European power market. The Commission’s goal is for cross-border power links to equal at least 10 percent of each member state’s power generation capacity by 2020 rising to 15 per cent by 2030. In 2014 the average interconnection level was around 8 percent. Five interconnector projects have attracted European community funding. See Table 1.
Table 1. Electricity interconnector projects
Europe’s grid challenges
Structural fragmentation of existing electricity transportation networks, lack of capacity and national autonomy over power supplies are the main obstacles to the completion of a single integrated European energy market. Upgrading and integrating the existing network of national grids and creating a pan-European high capacity “motorway” system, able to switch large volumes of power from one part of the continent to another, remains a priority for both the EU and Commission. In addition, capacity expansion of transmission lines and interconnectors is essential to accommodate the expected 33% of electricity produced in the EU that now comes from renewables, as fossil fuelled plants, are encouraged by the EU’s Large Combustion Power Directive, to close down early.
Insufficient interconnector capacity stands in the way of physically transporting and trading large volumes of electricity across borders. For instance, whilst the European mainland has no interconnections with the island states of Cyprus, Iceland and Malta, more significantly, many European states, including Poland, the UK, Spain and Italy are making only slow progress towards achieving the Commission’s 2020 interconnector target.
The opportunity cost of inadequate transmission lines and interconnectors falls heavily on both power utilities and consumers alike. For example, a lack of grid capacity in France hinders Spanish and Portuguese energy renewable companies from selling their surplus electricity to mainland Europe, whilst Britain’s National Grid maintains that building new interconnectors could save consumers £1 billion (€1.4 billion) a year. Insufficient grid capacity can also lead to electricity grid balance problems. For example, Germany’s grid capacity is insufficient to transmit surplus wind power from north to south, encouraging transmission operators to dump surplus power on neighbouring countries. Neighbouring countries are building huge “switch-off” transformers on their own borders in order to curb green energy export surges from Germany, thereby deliberately isolating Germany’s electrical grid. Meanwhile, Poland and the Netherlands whilst benefiting from cheap German green electricity on sunny and windy days nevertheless have to keep expensive power plant capacities in reserve.
A regional approach represents a stepping stone towards integration of the European power market. For example the Nordic countries, Finland, Sweden, Denmark and Norway pioneered integration of their electricity market into NORDPOOL and France, Germany, Belgium, the Netherlands and Austria have initiated integration projects. Nevertheless, the very existence of such regional markets helps to continue the grid systems’ fragmentary structure. Furthermore, regional grids, such as the British Isles and the Scandinavian operate on different frequencies to the continent’s synchronous grid. For example, Britain which is linked via a high voltage direct current (HVDC) subsea interconnector to Northern Ireland, Ireland, France and Holland needs transformers at each end to step up or to step down power as appropriate.
The European Commission and ENTSOE (European Network System Operators Electricity) have agreed to more than 100 transmission projects amounting to 52,300 kilometres of new and upgraded high-voltage routes needing around €104 billion. The trouble is, ENTSOE has found that about one third these projects are delayed "mostly because of social resistance and longer than initially expected permitting procedures". Indeed, as Poyry energy consultant Stephen Woodhouse, interviewed in Oxford over lunch, June 2015 notes, ”such delays can prove costly, for not only for project promoters, but also for consumers”. A case in point is the proposed interconnector to link Northern Ireland’s electricity grid with its counterpart in the South. Landowners opposition to the proposed route and strong public demand for the interconnector be laid underground have delayed the project by two years and would increase costs by an estimated €500 million. As a result, Steven Agnew, a Green Party Member of the Northern Ireland Assembly has spoken of his fears of power cuts. In addition, Woodhouse points out that in the intervening time consumers in the north are deprived of direct access to the cheaper power of the South.
It has been estimated by the Commission that Europe will need to spend at least €200 billion to upgrade grids between 2014-2020 of which around €104 billion is earmarked for electricity grid projects and €35 billion for” Projects of Community Interest interconnectors” (PCIs) including the new UK - Norway interconnector. However, Michel Derdevet, General Secretary and Board Member of ERDF, the Distribution System Operator (DSO) in France in his report, ‘Energy: A Networked Europe’ notes that the Commission’s envisioned contribution of €5.8 billion for PCIs from 2014-20, represents just 3% of the required investment and is too little to leverage sufficient contributions from other stakeholders to make up the difference. Stephen Woodhouse disagrees since, “Given the right incentives, money for projects should not be a problem” he asserts. He thinks that industry funding will be joined by funding from member states’ governments, development banks and private sector sources such as pension funds like CALPERS as well as Norway’s Sovereign Wealth Fund. However, what is not in dispute is that Europe’s regulations limiting profits on interconnectors discourages private sector investment whilst national governments favour domestic generation capacity over power imports via interconnectors.
Speeding up planning approvals
One of the main obstacles to getting major works underway is the labyrinthine planning approval system faced by investors. There is ‘no lead agency’ that project promoters can apply, observed Kenneth Culutta energy lawyer King & Spalding in a phone interview . Instead, project promoters, especially for transnational projects, have not only to apply to planning authorities in each and every affected country but, more often than not, a country’s regional and local- level planning authority. To hasten matters, some member states have started to streamline their planning procedures. For example, Germany has passed the new Grid Expansion Acceleration Law (Netzausbaubeschleunigungsgesetz) which effectively reduces the approval process from ten to just four years! Likewise, at the European-wide level, the EU has introduced a fast track strategic transmission process that identifies specific ‘Projects of Common Interest’ deemed important enough to merit priority approval procedures.
As for the future
It is clear that creating an integrated pan-European grid suitable for future needs poses multiple technical, political, regulatory, financial and social acceptance challenges. The Commission’s grants towards interconnector projects is a significant contribution towards creating a competitive, sustainable and secure energy market that, according to Miguel Arias Cañete, Commissioner for Climate Action, will “ultimately bring the benefits into our homes and businesses."
Image: A line worker working on an electrical transmission tower, by Tew3. CC-BY license