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Harmonizing electricity TSO regulation to ensure financeability of massive transmission investment plan: the case of North-West EU

January 2014

FSR Policy Brief

Co-author: Jean-Micherl Glachant. 

The study of five EU regulatory regimes for electricity TSOs (Belgium, Ger­many, Great-Britain, France and the Netherlands) suggests that their designs encompass strong tensions and trade-offs. Four main economic properties are at stake: the capability to (a) sufficiently remunerate TSO investments, (b) reduce the risk borne by TSOs, (c) incentivise TSO cost reduction, and (d) transfer efficiency gains to final users. No regulatory regime can simultane­ously reach the highest level of performance for each of these properties.

The existing national regulatory regimes show a significant heterogeneity of intrinsic trade-offs. This can be understood as a legitimate heritage from the past, and a consequence of the previous paths of network and regulatory re­gimes in an "isolated country" manner giving absolute priority to a particular set of local economic properties.

However, these isolated national contexts should no longer be valid as the Eu­ropean Union is pushing more than ever to prompt for wider integration and increasing interactions between power networks and power systems. In any regional EU market, the economic properties of national regulatory regimes must consequently be realigned and harmonized so as to contribute more to the EU common good.

This harmonization of regulatory regimes should take into account the TSOs’ capability to finance the investments required for projects of pan-European significance. In our new EU paradigm, incentives for "national only" cost re­duction should be ranked second in favor of "Pan EU" key issues such as re­ducing cost of capital, minimizing investment risk, and guaranteeing invest­ment financeability. The "coalition of the European willing" should push the entire zone to a more favorable environment for regional TSO investments.



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