EUROPEAN COMMISSION Brussels, 15.12.2020 SWD(2020) 346 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on guidelines for trans-European energy infrastructure and repealing Regulation (EU) No 347/2013 {COM(2020) 824 final} - {SEC(2020) 431 final} - {SWD(2020) 347 final}



Table of Contents 1Introduction: Political and legal context 1.1Legal framework 1.2Benefits of the TEN-E Regulation 1.3Political context 2Problem definition 2.1Problem 1: Type and scale of cross-border infrastructure developments are not fully aligned with EU energy policy objectives in particular as regards the European Green Deal and the climate neutrality objective 2.2Problem 2: Delays in project implementation 2.3How will the problem evolve? 2.4Scope of the initiative 3Why should the EU act? 3.1Legal basis 3.2Subsidiarity: Necessity of EU action 3.3Subsidiarity: Added value of EU action 21 4Objectives: What is to be achieved? 4.1General objectives 4.2Specific objectives 5What are the available policy options? 5.1What is the baseline from which options are assessed?

5.2Description of the policy options 5.3Options discarded at an early stage 6What are the impacts of the policy options? 6.1Scope 6.2Governance / Infrastructure planning 6.3Permitting and public participation 6.4Regulatory treatment 7How do the options compare? 8Preferred option 8.1Package of preferred policy options 8.2REFIT (simplification and improved efficiency) 9How will actual impacts be monitored and evaluated? 9.1Indicators 9.2Operational objectives 10Glossary Annex 1: Procedural information Annex 2: Stakeholder consultation Annex 3: Who is affected and how? Annex 4: Analytical methods Annex 5: Evaluation report

Annex 6: PCIs and CEF financial assistance Annex 7: Additional discarded options Annex 8: Introduction of a mandatory sustainability criterion Annex 9: Assessment of additional policy options Annex 10: REFIT (simplification and improved efficiency)

1Introduction: Political and legal context 1.1Legal framework The Regulation on trans-European energy networks (TEN-E), adopted in 2013, lays down rules for the timely development and interoperability of trans-European energy networks in order to achieve the energy policy objectives of the Treaty on the Functioning of the European Union (TFEU) to ensure the functioning of the internal energy market and security of supply in the Union, to promote energy efficiency and energy saving and the development of new and renewable forms of energy, and to promote the interconnection of energy networks. The TEN-E is a policy that is focused on linking the energy infrastructure – electricity, natural and biogas, oil, CO2 – of EU countries. The TEN-E Regulation puts in place a framework for Member States and relevant stakeholders to work together in a regional setting to develop better connected energy networks with the aim to connect regions currently isolated from European energy markets, strengthen existing cross-border interconnections, and help integrate renewable energy. As such, the TEN-E is a central instrument in the development of an internal energy market and necessary to achieve the European Green Deal objectives. To achieve climate neutrality by 2050 and higher levels of greenhouse gas emission reductions by 2030, Europe will need a more integrated energy system, relying on higher levels of electrification based on renewable sources and the decarbonisation of the gas sector . The TEN-E can ensure that the EU energy infrastructure development supports the required energy transition. The key tools of the current TEN-E guidelines to identify and speed up the implementation of the key infrastructure projects are to address the following problems: a) market and regulatory failures for cross-border energy infrastructure investments also due to asymmetric benefits and costs among Member States, b) too strong focus on national priorities in infrastructure investments decision and the need to align cross-border infrastructure projects with European infrastructure priorities to achieve synergies, and c) insufficient market based financing to address the investments needs in cross-border energy infrastructure. Under the TEN-E Regulation, the Commission shall ensure that a Union list of PCIs is established every two years. The TEN-E Regulation sets general and specific criteria for the selection of PCIs. PCIs span Member State borders or, while remaining within the territory of a single Member State, address an important bottleneck with significant impact on cross-border trade. Specific selection criteria are defined for each infrastructure category considering specific policy objectives (see Annex 5). While the current framework includes the mid- and long-term decarbonisation objectives, it is not systematically applied to all candidate PCI projects and hence limits the possibility to identify projects that support the energy transition to reach the European Green Deal objectives. For electricity and gas projects, in order to be eligible for inclusion in the PCI list, projects must be part of the latest available 10-year network development plan (TYNDP). Every two years the European Network of Transmission System Operators (ENTSOs for Electricity and for Gas) establishes first the system needs under different future and disruption scenarios. Then, a cost-benefit analysis (CBA) is performed for every submitted project, assessing their contribution to the system needs. For smart grids, CO2 networks and oil projects specific assessment methods are used. Project promoters submit their projects for selection as PCIs. The Regional Groups, chaired by the Commission and including representatives from the Member States, transmission system operators and their European networks, project promoters, national regulatory authorities, as well as the Agency for the Cooperation of Energy Regulators (ACER), assess the projects' contribution to implementing the priorities, the fulfilment of the relevant criteria and their maturity. Stakeholders are invited to take part in these meetings and bring their insight on the infrastructure bottlenecks and on the candidate PCIs into the assessment process. The decision-making power in the Regional Groups is restricted to a body comprising Member States and the Commission. Based on this assessment, the Regional Groups propose regional lists of PCIs. Based on the agreed regional lists, the Commission adopts the Union list of PCIs in the form of a delegated regulation. When doing so, the Commission ensures compliance with the relevant criteria, cross-regional consistency, and aims for a manageable total number of PCIs. A Member State to whose territory a proposed project relates may not approve its inclusion in the PCI list. So far, four Union lists of PCIs have been established. The 4th PCI list was adopted in 2019 and entered into force in March 2020. Since the first PCI list the total number of PCIs per list has been significantly reduced and the distribution across the different sectors has changed significantly with electricity PCIs representing two thirds of the total number of projects in the latest PCI lists. Oil, CO2 and smart electricity grids have represented a minor share (see Figure 1 ).

There is no automatism between the PCI status and CEF funding. Most PCIs are expected to be commercially viable and financed through regulated network tariffs, CEF funding for works is considered as ‘last resort option’ for the financing of PCIs. CEF is designed to address the gap between the socioeconomic value at regional/European level (such as security of supply, innovation and solidarity) and the commercial viability of projects. CEF promotes cooperation between countries to develop and implement energy interconnection PCIs that otherwise would not happen. This is especially the case for cross-border projects located in countries with smaller population sizes or in a more remote location, where energy tariffs would need to be increased substantially to cover the investment needs. The key elements of the TEN-E Regulation are summarised in Figure 2 and Annex 5. 1.2Benefits of the TEN-E Regulation The TEN-E Regulation has established a new approach to cross-border energy infrastructure planning. It brings together stakeholders in regional groups to identify and help implement projects of common interest (PCIs) that contribute to the development of energy infrastructure priority corridors and thematic areas. In addition to an effective and cost-efficient approach to infrastructure planning, the regulation has improved the permitting procedures. It requires Member States to ensure a streamlined permit granting process for PCIs within a timeframe of 3½ year for a permitting decision. They are to receive the highest national priority status and be included in national network development plans. The regulation also provides for regulatory assistance, rules and guidance for the cross-border allocation of costs and risk-related incentives, and provides access to financing opportunities from the Connecting Europe Facility (CEF). The evaluation of the current TEN-E Regulation shows that it has effectively contributed to connecting Member States networks and removing bottlenecks. Market integration between Member States and competitiveness have improved, as reflected in the progress towards the interconnection targets and the convergence of energy prices across the EU (see Annex 5 for more details). The implementation of electricity PCIs will help most Member States reach the 10% interconnection target for 2020. As a result, the EU energy market is more integrated and competitive than it was in 2013. The projects also enable the integration of renewable electricity and power exchange across borders reducing the need to curtailment. Security of supply, as one main driver behind the current TEN-E Regulation, has been significantly improved through PCIs. By the early 2020s, when the gas PCIs currently under implementation will be in operation, Europe should achieve a well-interconnected and shock-resilient gas grid and all Member States will have access to at least three gas sources or the global liquefied natural gas (LNG) market, a key element to improve the Union’s energy security through the diversification of gas sources. Since its adoption in 2013, TEN-E enabled the implementation of over 40 key energy infrastructure projects and further 75 projects are expected to be implemented by 2022. The financing support provided by CEF of EUR 4.7 billion in total enabled the implementation of 95 PCIs. Since 2014, CEF has provided financing to 149 actions of which 114 (EUR 519 million) for studies and 35 (EUR 4.2 billion) for works. Of the total budget of EUR 4.7 billion, EUR 1.5 billion were allocated to gas projects and EUR 2.8 billion to electricity projects. So far, around one fifth of all PCIs have received CEF financial assistance for studies and/or works. 1.3Political context Achieving climate neutrality by 2050, starting with a 55% reduction in GHG emissions by 2030, is the key climate objective of the European Green Deal presented by the von der Leyen Commission in December 2019. With the current climate and energy policy framework, the EU is not on track to achieve carbon neutrality by mid-century. The impact assessment carried out for the climate target plan estimates that full achievement of the currently legislated 2030 energy targets would lead to a reduction of 60% below 1990 by 2050 . Adopted before the climate neutrality objective, current climate and energy legislation is thus not sufficiently ambitious to deliver a 2030 climate target of at least 55% GHG emission reductions, as proposed by the Commission. Energy production and consumption represent 75% of total EU GHG emissions. To achieve the 55% target and to become climate neutral by 2050 Europe needs to lower its energy consumption and transition to cleaner energy. Energy infrastructure is a key enabler for the energy transition as reflected in the Commission’s communication on the European Green Deal and A Clean Planet for all . Infrastructure is a long-lived asset and will therefore need to be consistent with the climate neutrality objective so as to enable rapid and cost-effective decarbonisation of the energy system and more broadly the economy. This will require stepping up electrification of the economy; the average annual investments needed for the period 2021-2030 amount to EUR 50.5 billion for the power grid including both the transmission and distribution networks – more than twice the investments in the period 2011-2020 . Furthermore, to achieve the levels of renewable energy for a 55% reduction of GHG emissions by 2030, Europe needs to significantly scale up renewable electricity generation. This requires investment in offshore renewable energy, which can bring the scale that is needed. The Commission is planning to adopt an EU strategy for offshore renewable energy in November. In order to achieve the required massive scale up of offshore renewable energy in the whole EU up to 2050, the strategy will also address the issue of coordinating long-term planning and development of offshore and onshore electricity grids, which are assessed as part of this impact assessment. Other on-going policy initiatives of direct relevance include the revision of the TEN-T Regulation and the EU taxonomy for sustainable investments , as well as the review of the Renewable Energy Directive envisaged for 2021. At the same time, the Commission’s communication on energy system integration underlines the need for integrated energy infrastructure planning across energy carriers, infrastructures, and consumption sectors. Such system integration addresses in particular the decarbonisation needs of the hard to abate sectors, such as industry or transport, where electrification can be technically or economically challenging. Such investments include emerging technologies such as hydrogen, power-to-gas which are progressing towards commercial large-scale deployment. Already in March 2019, as part of the political agreement between the European Parliament and the Council on the Connecting Europe Facility for the period 2021-2027, the co-legislators agreed that the Commission should evaluate the effectiveness and policy coherence of the TEN-E Regulation and submit an evaluation to the European Parliament and to the Council by 31 December 2020. The Commission is requested, if appropriate, to accompany the evaluation by a legislative proposal for the revision of the guidelines. Stakeholders as well have called for this revision to align the TEN-E policy framework with the new policy context. 2Problem definition An evaluation of the current TEN-E Regulation was carried out back-to-back with this impact assessment to identify potential shortcomings. The main results can be summarised as follows (for more details see Annex 5): ·The TEN-E Regulation has effectively improved integration of Member States’ networks, stimulated energy trade and hence contributed to EU competitiveness, as shown in the evidence on interconnection targets and energy prices and their convergence across the EU. ·PCIs in electricity and in particular in gas have strongly contributed to security of supply as a main contextual driver to the design of the TEN-E Regulation. For gas, the infrastructure is now well connected and supply resilience has improved substantially since 2013.

·Regional cooperation in Regional Groups and through cross-border cost allocation is an important enabler for project implementation. However, in many cases the cross-border cost allocation did not result in reducing the financing gap of the project, as intended. ·While permitting procedures have been shortened, long permitting procedures persist in some cases. While the underlying reasons are mainly related to national implementation and outside the scope of the TEN-E Regulation, there are elements that can be improved. ·CEF financial assistance was an important factor, grants for studies helped projects to reduce risks in the early stages of development while grants for works supported projects addressing key bottlenecks that market finance could not sufficiently address. ·While the objectives of the current Regulation remain largely valid, their focus on 2020/30 targets must be upgraded to reflect the new political context and the 2050 climate neutrality objective under the European Green Deal. ·Besides the new political context and objectives, technological development has been rapid in the past decade. This progress should be taken into account in the infrastructure categories covered by the Regulation, the PCI selection criteria as well as the priority corridors and thematic areas. ·The TYNDP process as basis for the identification of PCIs has proven effective. However, while the ENTSOs and TSOs have an important role to play in the process, there is a need for more scrutiny, in particular as regards defining the scenarios for the future, setting long-term infrastructure needs and bottlenecks and assessing individual projects, to enhance trust in the process. It is worth noting that the evaluation did not look specifically at the issue of offshore grids as this was not a specific objective of the current TEN-E Regulation. As mentioned above, enhancing renewable energy and specifically offshore is a necessary part of the energy transition to achieve climate neutrality by 2050 in a cost-effective manner. The problems defined in this section and the policy options defined in Section 5 build on the results of the evaluation and on the numerous comments received from stakeholders (see Annex 2). 2.1Problem 1: Type and scale of cross-border infrastructure developments are not fully aligned with EU energy policy objectives in particular as regards the European Green Deal and the climate neutrality objective The increased 2030 climate target and the 2050 climate-neutrality objective of the European Green Deal and the Communication “A Clean Planet for All” require a profound transition of the European energy system, both on the supply and the demand side. Energy will be produced and consumed in a different manner and in different places than today. The role of electricity will increase radically, but there will also be an increasing role for renewable and low carbon gases. The Commission’s analysis shows that by 2050 more than 80% of electricity will stem from renewable energy sources, to an increasing extent located offshore. EU renewable electricity production should as a minimum double from today’s 32% share of renewable electricity in the energy mix to around 65% share in 2030. To achieve the European Green Deal objective of climate neutrality 2050 and 55% GHG emission reduction by 2030, the EU needs to significantly scale up the generation of renewable energy. For the upscaled deployment of renewable generation to have real economic, climate and societal value, the relevant grid infrastructure should be in place. Electricity grids are essential to transport renewable energy over medium to long distances, from production sites to the sites of consumption, and for integrating the European energy markets. An annual average investment of EUR 50.5 billion are needed in the electricity transmission and distribution grids, to achieve the 2030 targets alone. This compares to an annual average investment of EUR 24 billion in the period 2011-2020. This means that the grid investment should double from the previous decade. The Commission’s impact assessment for the 2030 targets shows that the offshore wind capacity in Europe should increase to about 280 GW by 2050 in order to meet the 2030 energy and climate objectives. This represents an increase of about 25 times compared to the current situation. As much as two thirds of the costs of the foreseen upscale in offshore renewable energy is related to infrastructure, a large part of which will be of cross-border nature. Over the last 30 years, about 12 GW offshore wind has been deployed in Europe, mainly as national projects. Continuing with the current deployment pace, offshore wind and related infrastructure would reach about 25 GW in 2050, or 1/10 of the required 280 GW to achieve climate neutrality. At the same time, all existing scenarios modelling pathways for the achievement of the climate neutrality objective by 2050 require a substantial role for renewable and low-carbon gases in the energy mix, since a 100% electrified energy system is not considered feasible. Therefore, by 2050 the use of unabated natural gas is to be reduced by 66 - 71%, with a steep increase of renewable and low-carbon gases, with hydrogen accounting for approximately 46% - 49% of all renewable and low-carbon gases in 2050. However, there is currently very limited dedicated or retrofitted infrastructure in place to transport and trade hydrogen across borders from one Member State to another. By 2030, total investments needs in hydrogen electrolysers are estimated between EUR 24-42 billion. About EUR 65 billion is needed for hydrogen transport, distribution and storage . These forecasts, and in particular the impact assessment accompanying the 2030 climate target plan, show that the energy mix of the future will be very different from the one today. The current energy infrastructure investments are clearly insufficient to transform and build the energy infrastructure of the future. This also means infrastructure needs to be in place to support this European energy transition, including rapid electrification, scaling up of renewable electricity generation, the increased use of renewable and low-carbon gases, energy system integration and a higher uptake of innovative solutions. Given the role of clean hydrogen in the decarbonisation and as energy carrier and storage for an integrated energy system, the lack of dedicated energy infrastructure for hydrogen would negatively affect the pathway to climate neutrality, especially for the decarbonisation of the industry sectors that have limited decarbonisation options available. Trans-European cross-border energy infrastructures have to make a more important contribution to build and establish the cross-border infrastructure necessary for achieving climate neutrality. A recent JRC study assessing the impacts of replacing coal with non-CO2-emitting resources, mainly onshore wind power, by 2030 concludes that, in a power system largely based on renewables electricity, interconnectors are “a definitive enabler, not only of market integration, but also of a path towards a renewables-based power system”. Investments to upgrade the electricity interconnections between European regions, within the EU but also with neighbouring countries, by 53 GW would have the potential to reduce the carbon footprint of the European power system by more than a quarter in 2030. A more interconnected power system would require the deployment of significantly less renewable generation capacity as well as significantly less thermal backup capacity. These findings confirm earlier studies pointing to the need and benefits of a more interconnected energy systems to enable a decarbonised power system. Concerning the future gas infrastructure needs, the Commission’s hydrogen strategy concluded that for the required deployment of hydrogen a large-scale infrastructure network is one important element that only the EU and the single market can offer. A study on infrastructure needs, commissioned by the Commission, concluded that total investment needs in the trans-European transmission energy infrastructure are around EUR 200 billion, in the period between 2021 and 2030. The upgrade of the electricity interconnections between European regions by 53 GW, as set out above, would require total investments of between EUR 35 and 70 billion by 2030. The upscale of offshore renewable energy in Europe by 2050 has an estimated cost of EUR 800 billion of which EUR 530 billion EUR is related to grid infrastructure. To reduce the costs as much as possible, a strong focus on rational grid development is key. The evaluation showed that the current TEN-E Regulation has made an important contribution in advancing cross-border energy infrastructure and in meeting energy policy objectives, and in particular security of supply. While the share of electricity PCIs has constantly increased since the first PCI list (see Figure 1 ), the share of the different sectors does not fully reflect future needs. Although transmission networks for offshore renewables are eligible under the current TEN-E Regulation and despite a priority corridor for offshore grid in the Northern Seas, very few offshore grid PCIs have been selected so far. The number of PCIs on smart electricity grids has never exceeded six. Gas PCIs have focussed on natural gas projects with no role for renewable and low carbon gases, including hydrogen. Problem driver 1.1: TEN-E infrastructure categories do not sufficiently reflect the Green Deal and technological progress The infrastructure categories eligible for PCI status under the current TEN-E Regulation do neither reflect the European Green Deal objectives and the related infrastructure needs nor technological progress made since 2013. This prevents the uptake of PCIs that are necessary to achieve the climate neutrality objective under the European Green Deal. In the gas sector, hydrogen networks are currently not eligible for PCI status, for which nearly all stakeholders considered EU-wide coordinated planning relevant for a cost-efficient transition to renewable and low-carbon gases. In addition to the technological advancement in renewable and low-carbon gases, digitalisation, automation, and other innovations, including the electrification of the transport sector, have made important progress. Smart grid solutions, including demand response, have developed considerably over the past years because of the acceleration of the digital transformation of the energy sector and will play a crucial role in enabling renewable energy integration. The need to update infrastructure categories to adapt to future challenges was widely shared among the stakeholders, who consider that the current set-up is not aligned with today’s decarbonisation ambitions nor reflect emerging technologies. This links directly to the eligibility for CEF financial assistance for which PCI status under TEN-E is a precondition. New infrastructure categories that can make an important contribution to achieve the climate neutrality objective, e.g. hydrogen are less mature and hence need access to financing e.g. for studies to help make the projects “bankable”. The above-referenced JRC study on the implications of a renewables based energy system also shows that cross-border interconnectors with third countries play an increasing role to achieve a decarbonised energy system cost-effectively. The Commission Expert Group on electricity interconnection targets also highlighted the role of interconnectors with neighbouring countries for the better integration of renewable energy sources and security of supply. Under the current TEN-E Regulation projects with third countries are only eligible if they show a physical cross-border impact for at least two Member States which is difficult to demonstrate. At the same time, the TFEU provides for the possibility that the Union may decide to cooperate with third countries to promote projects of mutual interest (PMI) and to ensure the interoperability of networks in the EU’s neighbourhood. Such cooperation can help reduce GHG emission in the EU and in third countries, thus contributing to achieving the Green Deal objectives. However, PMIs do currently not benefit from the provisions of the TEN-E framework.

Problem driver 1.2: Lack of a mandatory sustainability criterion in the PCI selection process The current TEN-E Regulation defines a set of selection criteria for projects that are eligible for PCI status. The specific criteria include sustainability, security of supply, market integration and competition. Electricity and gas PCI candidate projects need to contribute significantly to at least one of these specific criteria. As a result, projects that enable, for example, the increase in gas supply/demand may become PCIs even if they do not demonstrate benefits in terms of sustainability but address security of supply risks. Some stakeholders consider that this poses a risk that infrastructure developments and specifically PCIs may not be on track to achieve EU energy and climate policy objectives. Building on the conclusions of the Technical Expert Group on an EU taxonomy for sustainable investments this is not an issue for all infrastructure categories considered under the TEN-E framework. A sustainability assessment is not necessary for investments in electricity transmission and distribution networks in the interconnected European grid as well as electricity storage, which are considered as such as substantially contributing to climate change adaptation and mitigation objectives because of the need for electrification to achieve the climate objectives. The expert group concluded that the sustainability in terms of greenhouse gas emissions of new pipelines for new, low-carbon gases including hydrogen should be assessed. In the absence of a mandatory sustainability criterion for such projects, TEN-E would be incoherent with the taxonomy. Problem driver 1.3: Sectoral bottom-up approach to infrastructure planning The evaluation of the current framework concluded that the approach to cross-border infrastructure planning is in principle working well and that the central role of the ENTSOs (and TSOs) is justified by their specialised knowledge and expertise in network planning. However, it pointed to shortcomings of a sectoral approach to planning and to the lack of an independent validation of the assessment methodology and underlying assumptions used since TSOs are at the same time the promoters of most of the infrastructure projects submitted to the EU-wide TYNPD (and hence eligible for PCI status). This gives the ENTSOs an incentive to emphasise security of supply risks above e.g. investments in improving the efficiency of the system and hence to higher needs for infrastructure construction. Other actors such as the Commission and ACER have a limited role under current TEN-E Regulation, which cannot prevent that the ENTSOs assume e.g too significant gas/electricity demand for the future, import of fuel and unreasonable technology development. This in turn may lead to the identification of infrastructure gaps that are not realistic and overestimates the potential benefits of the proposed projects. This problem is reinforced by a sectoral planning approach. Today’s energy system is built on parallel vertical energy value chains, which rigidly link specific energy resources with specific end-use sectors. This is mirrored in a sectoral approach to infrastructure planning where electricity and gas networks are planned and managed mostly independently from each other. Whilst this approach has worked in the past, the Commission communication on energy system integration recalls that this model of separate silos cannot deliver a climate neutral economy by 2050. It is technically and economically inefficient, and leads to substantial losses in the form of waste heat and low energy efficiency. The insufficient integration of the energy system hinders the decarbonisation of electricity as well as major energy consuming sectors, notably transport and industry. The selection of infrastructure projects of common interest in the electricity and gas sectors is based on 10-Year Network Development Plans (TYNDPs). These plans are developed at national level and since 2013 integrated to the EU level for gas and electricity. The EU-wide TYNDPs are elaborated by the European Network of Transmission System Operators for Electricity (ENTSO-E) and for Gas (ENTSOG) which consist of the National Transmission System Operators (see Annex 5 for a more information). The two TYNDPs remain two separate sectorial processes. This represents a significant impediment in the identification of optimal infrastructure solution in cases where e.g. a need identified in the electricity sector could be tackled by a solution in the gas sector. Although the scenarios reflect the 2050 climate-neutrality objectives, the trajectories chosen are debatable and tend to favour in particular high levels of gas demand. A significant number of stakeholders across different stakeholder groups agree that the current sectoral approach to infrastructure planning does not match the needs for system integration and question the adequacy of roles and the coordination with the distribution operators and synergies with other sectors. Stakeholders indicated the wish to weaken the role of the ENTSOs (39%) and to strengthen the role of DSOs (53%) and other stakeholders, such as NGOs (39% - 67% of whom represented industry or civil society). Stakeholders state that the process is geared towards the construction of additional infrastructure and may be at odds with the energy efficiency first principle and not necessarily lead to those PCIs being selected and implemented that are most efficient from a technical, economic and social perspective. The risk of stranded assets exists. While the current bottom-up infrastructure planning via the TYNDP provides a solid basis for the identification of necessary infrastructure projects onshore, this is not the case for offshore grids. The onshore electricity grid developed over a long period and with an incremental and integrated approach when utilities were the owners of the generation units and networks. The starting point for the development of offshore networks is fundamentally different. An incremental approach, as used for onshore networks, is not sufficient to identify offshore infrastructure needs at the necessary scale as set out above. The bottom-up approach is too fragmented and nationally focused, which leads to a less rational offshore wind development, resulting in higher costs and irrational use of maritime space. Lack of grids and grid connections are perceived as a key barrier to large-scale offshore wind by the industry. Continuing the current practice would not bring along many new offshore wind parks at the required speed. Like for onshore infrastructures, there is also a risk of stranded assets offshore. A coordinated approach allows for developing an optimised offshore grid both with a view to interconnection and to evacuate offshore wind. A recent study has demonstrated that the current practice of nationally developing offshore wind with radial connections to shore, and in parallel develop cross-border interconnectors often is not the optimal way, although this may vary between regions. Hybrid assets in the North Sea region, i.e. interconnectors with offshore production connected to them would reduce costs significantly and make better use of the maritime space, compared to developing interconnections and evacuation of offshore wind separately. An inadequate framework for offshore infrastructure planning explains the slow progress in the identification of cross-border offshore infrastructure projects, whereas current permitting procedures for offshore projects explain delays in project implementation (see problem driver 2.1). 2.2Problem 2: Delays in project implementation Delays in the implementation of the projects of common interest, identified as necessary to achieve the EU climate and energy policy objectives, would jeopardise the accelerated change in the energy system as set out above. The implementation of PCIs still takes too long as projects have to overcome several challenges during the implementation process as is further outlined below. In 2020, 27% of electricity PCIs were delayed by on average 17 months against their initially planned commissioning date and the share of delayed electricity PCIs has been fairly stable (23%-31%) between 2016-2019. This would appear particularly problematic given the increasing role of electricity and resulting infrastructure needs to achieve the 2030 and 2050 GHG reduction targets. As for gas PCIs, in 2020, 38% of all PCIs encountered delays of on average 33 months. Problem driver 2.1: Long permitting procedures About 40% of PCIs are still expected to take more than the legal requirement to complete the permit granting procedure. According to ACER, the average permitting durations are 4 years for electricity PCIs and 3.1 years for gas PCIs with some PCIs requiring substantially longer than the foreseen maximum of 3.5 years. However, out of the 18 PCIs that already passed the 5-year mark, 13 had started the permitting process before the entry into force of the TEN-E regulation and therefore did not benefit from the permitting provisions therein due to the transitional provisions and are still in permitting under the applicable national rules. According to ACER’s report, three electricity PCIs were delayed at a permitting stage due to public opposition, while three more are facing lawsuits and court procedures that have resulted in delays as well. Public opposition continues to be one of the key factors for lengthy implementation procedures of PCIs driven by reasons such as insufficient or late use of participatory processes. Lack of public awareness on the specific needs for new infrastructure hampers the acceptance of PCIs and may result in a significant number of objections during consultations, thereby leading to significant additional efforts and delays in the permitting process. Ultimately, public opposition might lead to court claims by organised local communities, landowners and citizens living in the vicinity of potential installations and routing of PCIs. Since the administrative appeals and judicial remedies before court or tribunal do not fall under the foreseen permitting timeline of 3.5 years, this causes further delays. For instance, if there is an appeal regarding any of the issued permits, the permitting process is not complete until the appeal is complete and the permits issued are final. The TEN-E Regulation does not currently provide for any means of accelerating project implementation from the perspective of court proceedings. In this respect, a series of stakeholders mentioned that a streamlining of appeals regarding PCIs would also be considered so that the accelerated permitting process becomes truly effective. Strong regional cooperation is key to implement more cross-border hybrid and joint offshore projects. The permitting experience, so far, of offshore cables shows that they often encounter additional delays by comparison to onshore projects due to the need for additional studies, maritime spatial planning and crossing international waters of several countries. Cross-border hybrid and joint offshore projects bring even more challenges as the implementation of the infrastructure needs to be coordinated with the deployment of generation projects. As such, stakeholders called for streamlined permitting procedures for cross-border offshore projects. Delays in permitting leads to delay in infrastructure such as renewable electricity generation and grids that are needed for the energy transition towards climate neutrality in 2050. Problem driver 2.2: Sub-optimal implementation and insufficient use of cost sharing tools and regulatory incentives The TEN-E Regulation introduced a regulatory framework aiming at facilitating the implementation of PCIs, by creating financial and regulatory certainty: the split of costs across borders (cross border costs allocation, CBCA), inclusion of the investment costs into tariffs and additional investment incentives for riskier projects. In practice, these provisions remained underutilised depriving PCIs of the benefits they could have obtained thus delaying or failing to remove barriers to their implementation. The current CBCA provisions have rarely been used as intended to reduce or eliminate the financing gap but have been applied only for projects requesting CEF funding for works , as the CBCA is one of the required documents to be submitted. This is supported by ACER’s finding of 70% of all CBCA decisions made up to March 2018 concerning projects with only a single Member State involved . By March 2020, this share decreased to just under 50%. Allocation of costs to non-hosting countries, with the benefits that entails in terms of enabling and accelerating implementation, has only so far occurred for gas PCIs. Moreover, the manner in which national regulators approach CBCA decisions is very diverse and very often diverts from the principles above as regards the financing of infrastructure. NRAs often only allocate partially the investment costs into tariffs (or not at all) mentioning that the rest of the financing should come from a CEF grant or even issue CBCA decisions conditional upon obtaining CEF grants. This creates regulatory instability for the projects, which cannot obtain financing on the market and are rendered completely dependent on Union financial assistance leading, thus, to hampering their realisation. In addition, viewing the CBCA procedure solely as a precondition to CEF applications deprives the provision of its main purpose, which is creating a framework for the procedure of splitting the costs of PCIs across borders for the purposes of enabling and accelerating their implementation.

An additional issue arises with the application of the ACER CBCA Guidelines from 2015, which are not legally binding. Some NRAs and project promoters apply them and others do not, some choose to apply the most convenient elements. The correct implementation of the CBCA procedure becomes even more relevant in the context of infrastructure to support the development of offshore renewables. The reason is that the constructing countries will not necessarily coincide with the beneficiary countries due to the location of the offshore renewable energy potential in a certain sea basin, maritime spatial planning and environmental restrictions. Without the application of clear CBCA guidelines, the benefits from such projects could be widely split amongst Member States, not reflecting the benefits, and thus make the realisation of the projects difficult. The use of regulatory investment incentives introduced by the TEN-E for projects that incur higher risks has been low and, even though they were crucial for some of the projects, their overall contribution to the advancement of PCIs remains limited, with only eleven PCIs applying. According to ACER only in four cases overall (one electricity, three gas), risk-based incentives have been granted. Stakeholder input has shown that while some TSOs see an added value in these incentives in adjusting the financial risk, regulators refer to the low number of applications to illustrate the lacking need for additional risk-based incentives. Offshore wind related infrastructure projects will most likely have a higher risk profile than traditional interconnectors also substantiated by offshore energy industry stakeholders and project promoters, and could benefit from a facilitating regulatory regime that starts from an acknowledgement of their inherent higher risk, to be recognised in their regulatory regime. As such, stakeholders called for a clear legal framework for cross-border hybrid projects notably as regards the assessment of benefits and the cross-border allocation of costs. Moreover, the current provisions for investment incentives do not cater for more innovative grid solutions, for instance if they are more OPEX intensive relative to the CAPEX intensive traditional grids. In sum, the identified problem drivers are largely independent from each other, although reinforcing sustainability during PCI selection can contribute to limit the number of projects that are not fully in line with Green Deal objectives. The problem drivers behind problem 1 are largely driven by a new political context and technological progress. The problem drivers behind problem 2 are mainly related to implementation and the current TEN-E legal framework and to a lesser extent to technological progress (offshore wind). Figure 3 summarises the problems and the underlying drivers. The initiative is justified by market and regulatory failures also driven by a new policy context, new technological developments, and achievements since the adoption of the current TEN-E Regulation in 2013. 2.3How will the problem evolve? The problems and the underlying problem drivers are likely to become even more important in the short and mid-term. Adopted or planned policy initiatives such as the 2030 Climate Target Plan, the revision of the ETS Directive, the Effort Sharing Regulation, the Energy Efficiency Directive, the Renewable Energy Directive, the Energy Taxation Directive and the planned initiative for the decarbonisation of gas are expected to significantly increase the ambition on the mid- and long-term decarbonisation and renewable energy targets, in line with the 2030 55% GHG reduction objective. This will lead to an accelerated pathway to the decarbonisation of the energy system, significantly higher penetration of renewables in power and heating at the expense of fossil fuels, reduction of demand for energy, and hence to a significant increase in the need for an enabling energy infrastructure in place by 2030 and beyond. Without changes in TEN-E Regulation, investments necessary for this transition will happen in a sub-optimal, uncoordinated manner at a higher cost. The gap in cross-border infrastructure investments in line with the decarbonisation objectives is expected to increase, in particular as regards investment related to renewable generation, although there should be a lower demand for gas projects due to the progress in the completion of new gas infrastructure projects and changes in the market framework such as the taxonomy. Investments in technologies that allow moving towards decarbonisation more quickly would not be fully prioritised. Investments in cross-border hydrogen pipelines would not come forward fast enough, offshore wind developments would be incremental, smart grids needed for better functioning of the European network could not be fully exploited. Also, the identification of the future infrastructure needs and their planning would continue to be in silos, without contributing to the integration of the energy system. Moreover, the Covid19 sanitary crisis reinforces some of the identified problems such as delays in project implementation and access to financing for cross-border infrastructure projects. However, investments in energy infrastructure, in particular in the context of the roll out of renewable energy generation, is a key component of the recovery and resilience fund (RRF). Investments in smart and sustainable energy infrastructure has been identified as a key enabling factor to achieve the European Green Deal objectives and a green recovery in line with political objectives. However, also depending on Member States’ objectives, cross-border interconnections are not expected to be financed to a large extent under the RRF. The taxonomy regulation establishes criteria for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment is environmentally sustainable. The Commission is currently preparing two Delegated Acts to establish an actual list of environmentally sustainable economic activities by defining technical screening criteria for climate change mitigation and adaptation, which will be adopted by end 2020. These screening criteria are aimed to classify projects as guidance for private investors. Without a review of TEN-E there would be a risk of increasing incoherence with the guidance to private investment as established in the taxonomy regulation. 2.4Scope of the initiative Based on the evaluation results, the stakeholder feedback, and the problem analysis, key principles of the current TEN-E Regulation would remain unchanged and are not further analysed in the impact assessment: the TYNDP as such as tool to European infrastructure planning as basis for the PCI selection process (except for smart grids and CO2 transport networks), and regional cooperation based on priority corridors and thematic areas. Whilst the regional groups and the priority corridors and areas will remain as the key working method to identify and monitor the implementation of PCIs, they would be adjusted to the new scope of the TEN-E Regulation in terms of eligible infrastructure categories. The focus of the initiative is on four impact areas of the current TEN-E framework (see Figure 2 ): a) scope (infrastructure categories), b) governance/infrastructure planning (planning for offshore grids, and cross-sectoral infrastructure planning/PCI selection criteria), c) permitting, and d) regulatory treatment. 3Why should the EU act? 3.1Legal basis Article 170 of the Treaty on the Functioning of the European Union foresees that the Union shall contribute to the establishment and development of trans-European networks, inclosing in the area of energy infrastructure. The Union will need to promote interconnection of national networks. The TEN-E Regulation is based on Article 172 of the Treaty on the Functioning of the European Union which provides for the legal base to adopt guidelines covering the objectives, priorities and broad lines of measures envisaged in the sphere of trans-European networks as set out in Article 171. The guidelines are to identify projects of common interest that are necessary for making the TEN-E fit for purpose. The guidelines also set the conditions under which the EU may financially support the PCIs. 3.2Subsidiarity: Necessity of EU action Energy transmission infrastructure (including an interconnected offshore grid and smart grid infrastructure) has a European added value due to its cross-border impacts and is essential to achieve a climate neutral energy system. The TEN-E Regulation has provided value and has contributed to achieving results regarding the EU energy market integration, competition and security of supply. A framework for regional cooperation across Member States is necessary to develop cross-border energy infrastructure. Individual Member State regulations and actions are insufficient to deliver these infrastructure projects as a whole. 3.3Subsidiarity: Added value of EU action

Internal energy market is based on cross-border interconnectors, development of which requires cooperation of two or more Member States, all with their own regulatory framework. The TEN-E Regulation has provided additional value compared to what could have been achieved at national or regional level alone. There is widespread agreement among stakeholders on the EU added value of the Regulation, achieved through regional cooperation, access to financing, improved information and transparency, and improved planning and permitting processes. The majority believe that TEN-E achieved more than could have been achieved at national/regional level (92 %, 79% respectively agree) and that the issues addressed by the TEN-E Regulation continue to require action at EU level (91% agree, 0 disagree) (see Annex 2). Many Member States have benefitted from an increase in security of supply, more competitive markets and more interconnected energy networks. Given the recognition of TEN-E as effective and cost-efficient instrument in the evaluation, the current instrument should be further improved to address the above-identified problems instead of developing a new instrument. 4Objectives: What is to be achieved? In line with the results of the evaluation, the general objective of the initiative builds very closely on the general objective of the current TEN-E Regulation but develops it further. By referring explicitly to both energy and climate objectives as well as the 2030/50 targets, the revised general objective reflects the new political context and the achievements of the current TEN-E Regulation, e.g. in terms of gas security of supply. The overall objective is to align the TEN-E Regulation with the European Green Deal objectives, and the policy initiatives proposed within its framework and thereby to support the timely transition towards climate neutrality by 2050, starting with a 55% reduction in GHG emissions by 2030 in a cost-efficient manner. 4.1General objectives The general objective of the revision is to facilitate the timely development of adequate energy infrastructure across the EU and in its neighbourhood to enable delivering on the EU’s energy and climate objectives in line with the European Green Deal, in particular on the 2030/50 targets including the climate-neutrality objective, as well as market integration, competitiveness, and security of supply at least cost to consumers and businesses. Stakeholders in the targeted survey identified greenhouse gas emission reductions / climate neutrality as the most important challenge in the field of energy infrastructure today followed by the integration of renewable energy sources and energy system integration, both closely linked to greenhouse gas emission reduction. 4.2Specific objectives The specific objectives to be pursued by the policy options are to correct the problems and underpinning drivers identified in Section 2, namely to: ·Enable the identification of the cross-border projects and investments across the EU and with its neighbouring countries that are necessary for the energy transition and climate targets ·Improve infrastructure planning for energy system integration and offshore grids ·Shorten permitting procedures for PCIs to avoid delays in projects that facilitate the energy transition ·Ensure the appropriate use of cost sharing tools and regulatory incentives Figure 4 illustrates how the problems and their underlying drivers relate to the general and specific objectives of the initiative. The last column indicates how the policy options that will be developed in more detail in the next section relate to the problem drivers and objectives. Problem/Driver Objective Policy option Problem 1 Type and scale of cross-border infrastructure developments are not fully aligned with EU energy policy objectives in particular as regards European Green Deal and the climate neutrality objective General objective (Part 1) Facilitate the development of adequate energy infrastructures across the EU and in its neighbourhood to enable delivering on the EU’s energy and climate objectives, in particular on the 2030/50 targets, as well as market integration competitiveness, and security of supply Driver 1.1 TEN-E infrastructure categories do not sufficiently reflect the Green Deal and technological progress Specific objective 1 Enable the identification of the cross-border projects and investments across the EU and with its neighbouring countries that are necessary for the energy transition and climate targets Option A.1: Smart electricity grids and electricity storage Option A.2: Gas infrastructure, hydrogen networks and power-to-gas Option A.3: Projects of mutual interest (PMIs) Driver 1.2 Lack of a mandatory sustainability criterion in the PCI selection process Option B.2: Cross-sectoral infrastructure planning Driver 1.3 Sectoral bottom-up approach to infrastructure planning Specific objective 2 Improve infrastructure planning for energy system integration and offshore grids Option B.1: Offshore grids for renewable energy Option B.2: Cross-sectoral infrastructure planning Problem 2 Delays in project implementation General objective (Part 2) Facilitate the timely development of adequate cross-border energy infrastructures across the EU at least cost for consumers and businesses Driver 2.1 Long permitting procedures Specific objective 3 Shorten permitting procedures for PCIs to avoid delays in projects that facilitate the energy transition Option C.1: Permitting Driver 2.2 Sub-optimal implementation and insufficient use of the cost sharing tools and regulatory incentives Specific objective 4 Ensure the appropriate use of cost sharing tools and regulatory incentives Option D.1: Regulatory treatment In addition to the above objectives, the initiative seeks to simplify and improve the efficiency of the TEN-E Regulation as further specified in section 8.2. 5What are the available policy options? Building on the inception impact assessment and the evaluation as well as the issues identified in Section 2 and the objectives set out in Section 4, policy options to address the problems and its underlying drivers, will be presented and discussed for four impact areas of the current TEN-E framework: scope, governance/infrastructure planning, permitting and public participation, and regulation. A preliminary analysis will allow discarding those (sub-)options with the least positive impact. Table 1 provides an overview of the policy options subject to assessment.



Policy option Description A) Scope Option A.1. Smart electricity grids and electricity storage Option A.1.0 Business as usual Option A.1.1 Broadened scope to reflect technological developments Sub-option: Inclusion of non-mechanical storage Option A.2 Gas infrastructure, hydrogen networks and power-to-gas Option A.2.0 Business as usual Option A.2.1 Exclude all natural gas infrastructure but include hydrogen and P2G Option A.2.2 Exclude natural gas infrastructure but include hydrogen, P2G and smart gas grids for low-carbon and renewable gases Sub-option: Natural gas infrastructure for renewable and low-carbon gases Sub-option: Exceptions for natural gas PCIs (advanced implementation) Option A.3 Projects of mutual interest (PMIs) Option A.3.0 Business as usual Option A.3.1 Inclusion of projects of mutual interest (PMIs) B) Governance / Infrastructure planning Option B.1 Offshore grids for renewable energy Option B.1.0 Business as usual Option B.1.1 Integrated offshore development plans Option B.1.2 Regional Independent System Operator / Joint Undertaking Option B.2 Cross-sectoral infrastructure planning Option B.2.0 Business as usual Option B.2.1 Strengthened governance and sustainability Option B.2.2 New governance set-up and expansion of scope and role of the TYNDP C) Permitting Option C.1 Permitting Option C.1.0 Business as usual Option C.1.1 Use of urgent court procedures Option C.1.2 One-stop shop per sea basin for offshore renewable infrastructure projects D) Regulatory treatment Option D.1 Regulatory treatment Option D.1.0 Business as usual Option D.1.1 Inclusion of full investment costs The options set out in this section are those with a significant potential to address the problems identified above. Additional options are set out in Annex 9. These options propose changes or improvements of mainly technical nature and are considered non-essential in view of their potential to address the problem drivers. They do not entail political choices concerning the future TEN-E Regulation. During the evaluation study and the stakeholder consultations, several issues were subject to a large consensus between stakeholders. They are not re-discussed in detail in this report, as their positive impacts and contribution to the objectives of the initiative are considered well accepted. These issues are the following: a)Removal of oil pipelines as infrastructure category and thematic area: New cross-border oil pipelines are not in line with the long-term decarbonisation objectives. The Green Deal, and the relevant interim emission reduction objectives, put the transport sector on a more dynamic decarbonisation pathway then earlier targets. This is expected to drastically reduce oil demand and phase-out all unabated oil consumption. This trend and the already existing crude oil supply infrastructure coupled with the security of supply measures (e.g. emergency oil stocks) does not necessitate the inclusion of oil supply infrastructure in the revised TEN-E. b)Removal of electricity highways as infrastructure category and thematic area: Electricity highways are fully covered under the priority electricity corridors. Hence, the removal of electricity highways would not affect the outcome of the PCI selection procedure but simplify the process and remove unnecessary administrative burden. 5.1What is the baseline from which options are assessed? In the baseline, the current TEN-E Regulation is assumed to continue. The provisions as described above would continue to apply and constitute the basis of the bi-annual selection of PCIs and their implementation. The Regulation is likely continue to deliver results/outcomes and impacts as shown in the evaluation (see Annex 5) and the expected benefits from future PCIs. While the infrastructure planning and the PCI selection process would not change in substance, a methodology to assess the sustainability criterion for gas projects has been developed and may affect the number of gas projects on future PCI lists under the current TEN-E Regulation. Investments in system integration projects, such as hydrogen or biogas, would happen at local level but the necessary scaling up for an European market to emerge would be hampered because of lack of cross-border cooperation and planning framework. As for permitting, the existing Regional Groups could be used to support better enforcement of the existing provisions, which may improve and ultimately shorten project implementation. These changes are incremental and would not significantly affect the outputs, results/outcomes and impacts as identified in the evaluation. At the same, the significant progress in establishing a resilient gas infrastructure is likely to decrease the number of natural gas candidate PCIs, whereas an increase of electricity candidate PCIs can be expected – within the limits of the current scope of the Regulation. In addition, external factors will affect the PCI process. Adopted or planned policy initiatives such as the 2030 Climate Target Plan, the revision of the Energy Efficiency Directive, the Renewable Energy Directive, and the gas package may enter into force and increase the demand for energy infrastructure. The taxonomy regulation is expected to influence private investments towards more sustainable infrastructure categories. The Covid-19 sanitary crisis is likely to affect the level of investments and may delay project implementation (see also section 2.3). 5.2Description of the policy options 5.2.1Scope 5.2.1.1Smart electricity grids and electricity storage Option A.1.0: Business as usual The TEN-E Regulation defines each infrastructure category and a set of general and specific selection criteria for PCI projects. The criteria for a smart electricity grid is exhaustive and very detailed from a technical point of view and are thus difficult to be met at the same time. Only a few smart grid projects have been eligible as PCIs to date, nine in total since the adoption of the first PCI List. Concerning electricity storage the current definition is limited to mechanical storage with 13 storage projects on the current PCI list. On the cross border criterion for the smart electricity grids, a project needs to demonstrate in detail the involvement of the project promoters (a TSO or a DSO from two or more Member States, or from at least one Member State and an EEA country). Since the concept of “involvement" is not clearly defined in the current Regulation, the current practice has provided further interpretation regarding the necessary support from a TSO level (not being a direct project promoter but supporting it in any case) . Under the current cross border criterion, only large hydro and compressed air storage facilities are eligible for PCI status for electricity storage, prohibiting utilisation of other advanced electricity storage technologies such as batteries. Option A.1.1: Broadened scope to reflect technological developments The definition and the description of smart electricity grids thematic area would be updated by including elements regarding innovation and digital aspects that could be considered among the equipment or installations for smart grids. The criteria would be adjusted accordingly to reflect the broadened scope. Whereas the requirement for the involvement of project promotors from two or more Member States remains, it would be clarified that not all involved DSOs and TSOs do not need to be project promoters, but it is important that the relevant TSOs and DSOs are duly informed about and supportive of the project. In addition, smart grid projects at TSO level, not involving DSOs, would also be allowed. The update would also include a specific reference to smart grids enabling charging infrastructure for electric vehicles at the medium to high-voltage level. Sub-option: Inclusion of non-mechanical storage technologies

The definition of electricity storage would be updated by including elements related to new technologies utilised for electricity storage. Key changes would be to define new criteria to prove significant cross border impact for new non-mechanical storage technologies (for ex. electrochemical storage in batteries or chemical storage in hydrogen). For non-mechanical storage technologies new values for minimum installed power in MW and energy capacity in MWh would be proposed. Those values would be smaller compared to the current values and be based on the latest Commission storage study and would need to be sufficiently high to ensure significant cross-border benefits. The current criteria would remain for mechanical storage facilities. This would allow the TEN-E frameworks integrate technological progress necessary to support a cost-efficient energy transition. Stakeholder views: Many stakeholders underline the significance of electricity distribution infrastructure in an interconnected European energy market that increasingly relies on distributed generation and active participation of end consumers. In this context, many stakeholders pointed out a necessary update of smart electricity grids thematic area by including new smart technologies, solutions and concepts. Stakeholders suggested that the current eligibility criteria for storage technologies do not provide sufficient flexibility for the support of different and emerging storage technologies. 5.2.1.2Gas infrastructure, hydrogen networks and power-to-gas Option A.2.0: Business as usual This policy option would keep the status quo regarding the scope of the Regulation with regard to gas infrastructure. Natural gas projects would remain eligible for PCI status and CEF funding, if they contribute to the TEN-E objectives. Hydrogen, power-to-gas facilities and smart gas grids are not in the scope of the regulation and therefore not eligible for PCI status, nor CEF funding, except in case they fall under the new cross-border renewable window of CEF II coming into force under the 2021-2027 MFF. Retrofitting to allow for hydrogen blends and projects aiming specifically to integrate renewable gases (biogas/biomethane) would remain eligible in principle (as long as they affect the transmission infrastructure) but in practice unlikely to meet all the current selection criteria, since such projects typically do not aim at increasing cross-border transport capacity. Option A.2.1: Exclude all natural gas infrastructure, but include hydrogen and P2G Under this policy option, the scope of the TEN-E Regulation would cover only the following projects: ·Dedicated new and repurposed hydrogen networks with cross border relevance (including hydrogen transmission pipelines and related equipment such as compressors; storage facilities; facilities for liquefied hydrogen). ·Power-to-gas facilities and related infrastructure with cross-border relevance (i.e. aiming to supply at least two Member States and consideration of setting a capacity threshold Only the above projects would be eligible for PCI status (apart from electricity and CO2 transportation projects). All infrastructure projects related to the methane gas grid would be excluded from the scope. Policy option A.2.2: Exclude natural gas infrastructure but include hydrogen, P2G and smart gas grids for low-carbon and renewable gases In addition to the inclusion of new and repurposed hydrogen networks and P2G (as described in the previous option), a new PCI category would be created for smart gas grids. This would support investments at distribution and/or transmission level to integrate locally produced renewable and low carbon gases (typically biogas and biomethane but also hydrogen) in the network and help manage a resulting more complex system, building on innovative technologies. The candidate projects would consist of a range of investments directed at "smartening" and decarbonising a given gas network. Some of the investments would affect the TSO level, such as for instance compressor stations to enable DSO-to-TSO reverse flow. The following requirements could help ensure project scale and cross-border impact: ·To require the involvement of DSOs and TSOs from at least two Member States (mirroring the cross-border criterion for smart electricity grids). ·To require involvement of one or several DSOs as well as one or several TSOs. ·To establish a threshold, for instance based on the number of consumers and/or energy consumption volume, similar as for smart electricity grids. Sub-option: Natural gas transport infrastructure for renewable and low-carbon gases Under this option, natural gas projects would no longer be eligible for PCI status, regardless of their contribution to the TEN-E objectives. However, an exception could be made for gas infrastructure projects that specifically aim at integrating renewable and low-carbon gases (i.e. biogas, biomethane, synthetic methane produced from hydrogen, or pure hydrogen) into the existing natural gas (methane) transmission network. This exception could comprise one or both of the following project types:

1.Newly built gas transmission infrastructure projects of cross-border relevance aiming to integrate biomethane and synthetic methane into the European gas network; 2.Retrofits of existing natural gas transmission assets for hydrogen admixtures/blends. While certain investments on the transmission level could also form part of a smart gas grid project, the infrastructure categories under this exception would affect exclusively the transmission level and would not necessarily involve any “smart” elements. Sub-option: Exceptions for natural gas PCIs at an advanced implementation stage A further exception could be made (under either of the two policy options) for existing natural gas PCI projects at an advanced stage of implementation to cater for legitimate expectations by the affected promoters. This would mean the following: existing gas PCIs which are already under construction, or will start construction before [the end of 2022], or for which a CEF grant agreement for works has been concluded before [the end of 2022], would remain eligible for PCI status under current rules to allow the finalisation of these projects under a preferential treatment. There could be an additional limitation which would make the affected projects eligible under the current rules only for the first list to be adopted under the revised TEN-E. The choices on the updated gas infrastructure priorities and eligible infrastructure categories will be reflected in the structure and objectives of the affected regional groups and thematic priority areas defined in the TEN-E Regulation. Gas policy options and infrastructure categories A.2.0: Business-as-usual A.2.1: Hydrogen and P2G A.2.2: Green gas infrastructure Hydrogen networks X ✔ ✔ Power-to-gas X ✔ ✔ Smart gas grids X X ✔ Natural gas infrastructure ✔ X X Exception for advanced natural gas PCIs NA ✔ ✔ Exception for natural gas TSO infrastructure to integrate biomethane and synthetic methane (✔) X ✔ Exception for natural gas TSO retrofits for hydrogen admixtures (✔) X ✔ Legend: ✔ : infrastructure category possibly included in the scope; (✔): included in principle but unlikely to meet (all) PCI eligibility criteria; X: excluded from the scope; NA: not applicable The eligibility for CEF financial assistance would be adjusted to the infrastructure categories of the revised TEN-E Regulation, i.e. expand eligibility to all or some of those categories that were added, while those removed would by default be excluded from CEF financial assistance. For CEF financial assistance for works the same principles as under the current framework (commercial non-viability and externalities) would apply. However, as electrolysers would be already eligible for CEF financial assistance as cross-border projects in the field of renewable energy under CEF II (so-called cross-border RES window), under this option electrolysers would not be eligible for CEF financial assistance under the future TEN-E Regulation. Stakeholder views: While several stakeholder groups, mainly representing TSOs and industry associations, considered the inclusion of hydrogen infrastructures, smart gas distribution grids as well as power-to-gas important, there was mixed support notably from NGOs. Environmental NGOs in particular, but also some stakeholders representing the electricity sector, were against the inclusion of natural gas infrastructure in the future scope of TEN-E and voiced concerns about the sustainability of the new types of gases. 5.2.1.3Projects of mutual interest (PMIs) Option A.5.0: Business as usual Only projects, which are able to demonstrate socio-economic benefits for at least two EU Member States are eligible for PCI status. Significant cross-border impact needs to be demonstrated by meeting a certain capacity threshold. Option A.5.1: Inclusion of PMIs under the TEN-E Regulation The status of projects, which are able to demonstrate significant net socio-economic benefits for at least two EU Member State and at least one third country could be recognised by the revised TEN-E Regulation by introducing specific criteria for such projects. For such projects to obtain a priority status, the conditions of regulatory approximation with the EU would need to be fulfilled, and the projects would need to contribute to the EU overall energy and climate objectives in terms of security of supply, decarbonisation. In addition, the third country, when supporting the priority status of the given project, would also commit to full support of the project in view of complying with a similar timeline for accelerated implementation and other policy support measures, as stipulated in the TEN-E Regulation. The presented options would not effect the very few projects with third countries which already qualify under the existing PCI eligibility criteria. This would allow identifying cross-border infrastructure between the EU and neighbourhood countries that is mutually beneficial and necessary for the energy transition and the achievement of the climate targets. Stakeholder views: There was mixed support among stakeholders to extend the scope of the Regulation to Energy Community countries and other third countries. Support was mainly expressed by TSOs of Member States with borders to non-EU countries as well as non-EU stakeholders. Some stakeholders called for a specific regime for this kind of projects to ensure that similar regulatory standards are complied with. 5.2.2Governance / Infrastructure planning

5.2.2.1Offshore grids for renewable energy The offshore grids for renewable energy is a transmission infrastructure, with dual functionality: interconnection and transport of offshore renewable energy from the offshore generation sites to two or more Member States (thereafter hybrid grids). The offshore grid can also include the Member States internal high voltage transmission infrastructures (new or reinforcements) that demonstrate significant necessity for the transport of offshore renewable energy to the consumption sites, as well as any offshore adjacent equipment or installation essential to operate safely, securely and efficiently, including protection, monitoring and control systems and necessary substations. Option B.1.0: Business as usual This option would continue the incremental development of offshore grids observed so far. As regards planning, ENTSO-E would identify and analyse within the Regional Investment Plans (which are part of the ten-Year Network Development Plans package) the necessary regional offshore grid infrastructure. The identification of the infrastructure needs, project proposals and assessment done in line with the latest available Commission scenarios and Member States commitments on offshore renewable energy. This enhanced TYNDP would be the basis for the PCI selection process. Option B.1.1 Integrated offshore development plans This option would strengthen the cooperation in offshore infrastructure planning and implementation. It would require Member States within each sea basin to jointly commit to the amount of the offshore renewable deployment for each sea basin. In addition, it would mandate ENTSO-E, with the involvement of the relevant TSOs and in line with the political commitments, to develop offshore plans for time horizons 2030, 2040 and 2050 respectively for all the sea basins. The integrated offshore network development plan is to be coherent with the TYNDP and developed under the Commission’s steering and binding opinion. If, based on ENTSO-E’s report, a group cannot agree on an integrated offshore network development plan, or ENTSO-E does not develop such plans on time, the Commission may take over, possibly with input from a third party in view of having an integrated offshore network development plan established per sea basin. Finally, this option would include a requirement for the Commission to develop a specific cost-benefit and cost-sharing method for offshore infrastructure that will enable Member States to properly assess the direction they want to take and carry out a preliminary cost sharing procedure. Option B.1.2 Regional Independent System Operator / Joint Undertaking This option gives the task of offshore grid planning, including the identification of infrastructure gaps, proposal and implementation and offshore grids, investment per sea basin and cross border cost allocation process for offshore infrastructures to a new entity, either a regional Independent System Operator or a Joint Undertaking e.g. per sea basin. A single entity could optimise the grid planning and investment per sea basin more efficiently, than a group of TSOs. The entity would have to take over key responsibilities from the national TSOs. Options B.1.1 and B.1.2 would allow going beyond the bottom-up approach to infrastructure planning for offshore infrastructure. Stakeholders view: Stakeholders did not express specific views on the future offshore infrastructure planning regime. However, there was the general view that hybrid assets and meshed offshore wind hubs will be essential for the development of offshore renewable energy in Europe. 5.2.2.2Cross-sectoral infrastructure planning Option B.2.0: Business as usual The current conditions continue to apply without changes. The Electricity and Gas Regulations mandate the ENTSOs to develop every two years their respective 10-year Network Development Plans (TYNDP) and give ACER the power to deliver a non-binding opinion on these plans. The Commission has no direct role in the development of these plans. The sole oversight of the Commission is on the ENTSOs’ gas/electricity Cost-Benefit Analysis (CBA) methodologies, which must receive approval from the Commission before their use in the TYNDPs and the PCI selection process. Sustainability is an integral part of the CBA methodologies for PCI selection. Under the TEN-E framework, sustainability is as optional criterion alongside security of supply, competition or market integration. Although in practice the Cost-Benefit Analysis methodology provides leeway to prioritise some criteria over others, prioritisation is not enshrined in the current TEN-E text. Thus, keeping the current frame would allow a project with negative impact on the sustainability criterion but good results on other criteria be selected as PCI. Option B.2.1: Strengthened governance and sustainability This option entails maintaining the current governance of the TYNDPs and the role of the ENTSOs with significant improvements in the Commission and ACER oversight on the TYNDP. This includes in particular three elements. First, a strengthened oversight role for the Commission, through means of binding opinions, on the ENTSOs’ scenarios and system needs identification, which are key steps in the process to deliver the TYNDPs and define what infrastructures are needed. This would allow the Commission to safeguard the alignment of the ENTSOs’ scenarios to climate and energy targets and Commission scenarios, along with the improved identification of the infrastructure needs. Second, a reinforced role for ACER in the development of scenarios and in the Cost-Benefit Analysis methodology by mandating the Agency to develop framework guidelines for the ENTSOs’ scenarios and approve incremental improvements of the Cost Benefit methodology. Third, a deeper interlinkage between the sectoral TYNDPs to reinforce their contribution to the energy system integration process and increased participation of the DSOs in the planning process. This option would also require the inclusion of a mandatory sustainability criterion for all gas infrastructure categories with at least one other criterion (market integration, security of supply, competition) at the stage of project selection. This would be applicable to any gas infrastructure category included in the future TEN-E Regulation in line with the principles of the taxonomy. The relevance of each criterion in the ranking of the gas projects would be defined in the assessment methodology for the ranking of the candidate projects. This methodology is discussed and validated by the regional groups as under the current TEN-E Regulation. Option B.2.2: New governance set-up and expansion of the scope and the role of the TYNDP This option would establish a new governance set-up for the TYNDPs and expand the scope of the TYNDP in order to integrate energy system-wide cost-efficiency. Through a governance reform, a neutral actor (such as the Commission or ACER) would take a leading role in the TYNDPs development. Within this frame, the Commission or ACER would not be responsible of delivering any opinion or approval of the ENTSOs work as in option B2.1. Instead, the neutral actor will be responsible of the entire planning process, meaning developing scenarios and the associated data, run market and network studies to identify infrastructure gaps within electricity and gas sectors, assess the benefits of possible and draft and publish the planning reports. The role of ENTSOs and TSOs would be limited to providing information given their unique expertise in networks. This option would also require the inclusion of a mandatory sustainability criterion for all gas infrastructure categories as per option B.2.1.

Options B.2.1 and B.2.2 would allow overcoming the sectoral approach to infrastructure planning and ensuring that sustainability will be considered during the PCI selection process. Stakeholders view: ACER and a majority of other stakeholders, while recognising the merits of having the ENTSOs’ expertise in the process, asked for a stronger oversight from the Commission and ACER on scenarios, cost-benefit analysis and identification of system needs. There is a large consensus among stakeholders that the importance of sustainability in the PCI selection process of the (decarbonised) gas projects needs to be reinforced. Some categories of stakeholders also underline the importance of maintaining strong weighting for other criteria, in particular security of supply, in a multi-criteria selection approach. 5.2.3Permitting and public participation Option C.1.0 Business as usual The permitting provisions in the TEN-E Regulation, which are very innovative and have already proven their effectiveness with the permitting duration of PCIs decreasing significantly, would remain unchanged. Option C.1.1: Use of urgent court procedures Administrative appeal procedures and judicial remedies before a court or tribunal do not fall within the time limit prescribed for the permitting process of 3.5. years meaning that their duration, if they happen, adds on to the project implementation delay. To accelerate the completion of the permitting process, Member States, which already have urgent court procedures under national legislation in other domains, would have to ensure that these accelerated litigation procedures are applicable to PCIs under national legislations. Option C1.2: One-stop shop per sea basin for offshore renewable infrastructure projects The one-stop shop would issue the comprehensive decisions for the infrastructure elements for offshore projects by coordinating all the national and regional permits to be obtained within the 3.5 years time-limit and ensure that offshore projects do not encounter delays beyond this period. It would enable coordination between the permitting process for the infrastructure and the one for the generation assets and it would act as a single point of contact for project promoters and a repository of existing sea basin studies and plans, which would facilitate the permitting of individual projects. The one stop shop would be comprised of staff from all the already existing national permitting one-stop shops. This option is complementary to the ones mentioned above. Options C1.1 and C1.2 would allow shortening permitting procedures. Stakeholder views: While a series of stakeholders pointed to the difficulties with complex and lengthy permitting process for offshore projects crossing several jurisdictions and called for a simplified permitting process, no stakeholder expressed any specific opinion on a possible new one-stop-shop for offshore wind projects. Stakeholders involved in the permitting procedures indicated that several notions in the permitting chapter could be clarified (see additional options in Annex 9). Stakeholders also raised the delay with the court and appeal procedures regarding PCIs and called for streamlines court procedures for PCIs. 5.2.4Regulatory treatment Option D.1.0: Business as usual The current CBCA provisions, which provide the principles and tools to ensure that costs are allocated cross-border in an orderly manner enabling the development of such projects, would be maintained. However, in practice this means that the CBCA procedure would be used only as a pre-requisite for requesting CEF grants for work and the provisions would not reach their potential in enabling projects implementation. Option D.1.1: Inclusion of full investment costs This option aims at ensuring consistency between the CBCA decisions and safeguarding the primary goal of the CBCA. This would entail a two-stage approach in which: (i) The NRAs would allocate all investment costs across borders and include them in full in the national tariffs and, afterwards, if necessary, (ii) assess whether any affordability issues arise as regards the increase in tariffs due to the inclusion of such costs. The NRAs would always assess how much a certain project would cost if it were paid for completely by tariffs and this should be the basis for the affordability test and, ultimately, for calculating any public financing. This would allow for a better implementation and use of the cost sharing tools. 5.3Options discarded at an early stage ·Expand CO2 infrastructure category to include CO2 transport by ship and infrastructure necessary for the permanent geological storage of CO2 Mainly stakeholders representing the CO2 industry argued for the inclusion of CO2 transport by ship and infrastructure necessary for the permanent geological storage of CO2in the TEN-E Regulation. The transport infrastructure category would be enlarged from only pipeline infrastructure to also include shipping infrastructure, both the facilities necessary to enable shipping as the actual ships themselves, and infrastructure related to CO2 storage.

However, it is not clear how the inclusion of transport with mobile assets such as ships in the TEN-E Regulation would help the implementation of such projects. There are no regulatory or administrative barriers in relation to cross-border networks that could be addressed by the provisions in the TEN-E Regulation. The key barrier to the deployment of CO2 infrastructure, including for the geological storage of CO2 and shipping, is access to financing. The only benefit sought by such projects being eligible for PCI status would be that they may get access to CEF financial assistance. However, the key objectives of the TEN-E is to support the timely implementation of infrastructure projects of cross-border nature where CEF financial assistance is only one element as a last resort financing option. Moreover, such expansion would not relate to transmission networks and interconnections in accordance with the legal base. Other EU and national financing instruments are available to support CO2 infrastructure for geological storage and shipping such as the Innovation Fund. ·Projects to reduce methane leakage Methane leakage projects would be unlikely to demonstrate cross-border impact. Methane leakage projects consist of retrofits and repairs of different elements of a gas network. They often do not involve capital investments but rather network management and repair methods (more related to operational expenses). The investments involved are often targeted at the distribution level, which is responsible for around 60% of methane emissions from gas operations in Europe. Such investments are therefore per definition related to one country’s network and aim at improving the efficiency of the network operation and emission savings but do not aim at increasing cross-border capacity, neither do they have indirect effects on cross-border trade or capacities. Therefore, projects specifically aiming at methane leakage reductions do not really fit the intervention logic of the TEN-E Regulation nor under the concept of projects of common interest of a trans-European importance. Based on IEA data, the gas industry itself has cost-effective options to make its contribution to methane emission reductions by deploying best available technologies for the various gas chain elements and processes; and by adopting best practices and implementing leak detection and repair programmes. ·Removing cross-border requirements for smart electricity projects (inclusion of pure DSO level projects at local level) Different stakeholders have called for the eligibility of all smart electricity grid projects, also those with no involvement of TSOs, for PCI status. With 2 400 DSOs in Europe, the potential number of eligible projects would be very high. At the same time, without the involvement of a TSO, it would be difficult, if not impossible, to demonstrate a significant cross-border impact for such projects. It would not be in line with the legal base, which requires a clear link to the transmission level. The required resources for the selection process would be disproportionate in view of the projects that could actually qualify. The inclusion of projects at a DSO level and hence without a (significant) cross-border impact would neither imply more investments at the distribution level nor an easier implementation process for such projects. To the contrary, it may rather create wrong expectations and add unnecessary burden on all parties involved in the PCI selection process. ·Heat networks as new infrastructure category Some stakeholders such as heat network operators argued for the inclusion of smart heat networks in the TEN-E Regulation as this could bring benefits in terms of system integration. However, heat networks are local in nature with no or very limited cross-border impact. There are no heat transmission networks as it is not efficient to transport heat over long distances. European infrastructure planning for the purpose of interconnections and interoperability is therefore not needed for heat networks. Additional discarded options of more technical nature, also based on the evaluation results and stakeholder views, are included in Annex 7 and relate to the following topics: breaking the link between the CBCA and CEF financing, conditional CBCA decisions, and the easing of environmental and location approvals for PCIs. 6What are the impacts of the policy options? The assessment of the impacts of each policy option relies to a large extent on a qualitative approach looking at the main environmental, economic, and social impacts as well as administrative burden, if applicable. It was not possible to quantify the impacts for all options because the specifics of future PCIs would need to be available for that purpose which is particularly challenging for new or emerging infrastructure categories. Moreover, many of the proposed changes are mainly improvements to the current framework, which has been deemed to work relatively well and broadly meet its aims. Relevant sectoral studies or literature are used to provide a quantitative indication of certain impacts even if their scope is not limited to PCIs. While PCIs as cross-border infrastructure project cover a comparatively small number of energy infrastructure projects and needs in Europe, they constitute key infrastructure projects that enable and trigger additional investments with impacts beyond the direct benefits of the projects of common interest. The TEN-E Regulation does not impose obligations on economic operators, but it does set requirements on promoters of PCIs, mainly TSOs and DSOs, which decide to apply for PCI status and subsequently become subject to certain obligations, mainly in the form of monitoring and reporting obligations. In addition, the TEN-E Regulation sets obligations on competent national authorities and regulators concerning permitting, regulatory incentives, and public participation as well as on network operators concerning long-term network planning. Consumers are mainly affected through network tariffs to finance investments in the regulatory asset base (RAB). 6.1Scope 6.1.1Smart electricity grids end electricity storage Option A.1.0: Business as usual To keep the current eligibility criteria would imply that the smart electricity grids thematic area remains restricted and only accessible for a limited number of infrastructure projects. In the case of electricity storage, it would remain limited to large mechanical/hydro storage projects. In the case of smart electricity grids, digitalisation and innovation in the grids creates would not sufficiently reflect recent technologies and hence potential positive environmental, economic and social impacts would not be enough exploited (see below). Regulatory frameworks and regulatory practice in the Member States in many cases do not sufficiently support innovative grid investments by the TSOs or even constitute a barrier to such investments. Option A.1.1: Broadened scope to reflect technological developments Environmental impacts The broadened scope for electricity smart grids would support the changing infrastructure and system security needs with a higher uptake of innovation and digitalisation in the grids. Over 90% of distributed renewable energy generation will most likely continue to be connected at distribution grid level. Consumers, mostly connected to the distribution grid, are allowed to provide demand-side flexibility, with 120 GW-150 GW of flexible load available by 2045. The ongoing rollout of smart metering will boost this development. Further synergies with the TEN-T Regulation would help to enhance the future charging infrastructure for electric vehicles and would benefit users of electric vehicles by supporting smart grid projects enabling charging infrastructure for electric vehicles. It is expected that the vehicle stock share of electric cars will increase to up to 11% by 2030 from currently below 1%. Electric vehicles with “smart charging” could provide capacity for flexibility and demand response. These use cases alone or as elements of virtual power plant platforms could become an important interface between energy and mobility, since digital infrastructure is a key enabler for the energy transition in these two sectors with a significant greenhouse gas reduction potential. While TEN-E would only cover smart grid projects with a cross-border impact, these projects could make a significant impact to ensure interoperability across Member States. Sub-option: Inclusion of non-mechanical storage technologies

The estimated daily flexibility required to be provided by electricity storage in 2030 is 97 GW for EU-27. Electricity storage provides flexibility to the power system operation and decreases the need for new power lines within the power system. In certain cases energy storage systems can be deployed faster than transmission lines and have a smaller footprint than transmission projects eliminating environmental impacts from construction of those projects. The increased demand of different storage technologies, especially electrochemical (batteries) would support development and usage of new, more advanced storage systems, decreasing the overall impact on the environment. The inclusion of electric storage in the form of batteries would result in potential emissions associated with the production of batteries. However, the emission factors calculated vary significantly depending on the type of battery in terms of materials and energy density and the source of energy used for its production. However, it is anticipated that the potential environmental impacts could decrease very significantly. In its 2019 Strategic Action Plan on Batteries, the Commission points to the importance of improved recycling processes, and an extension of the battery lifetime. Re-use of batteries in stationary applications can reduce environmental impacts over the life- cycle. Economic impacts A broadened scope of smart grids would increase the network operational efficiency through the implementation of flexibility features of existing HVDC (High Voltage Direct Connection) cables and the enhancement of the exploitation of demand-response management services based on the increased cross-border data and capacity exchange, together with the provision of ancillary services between the related TSOs and/or DSOs. In addition, cross-border smart electricity grids facilitate the growing penetration of renewable energy sources in the grid and enable a better integration of the behaviours and actions of all users connected to the network across borders. In the light of changing infrastructure and system security needs, this policy option would contribute to stimulate the use and implementation of new innovative technologies and activities in the domain of digital technologies, which will enhance the already existing positive impact of cross-border smart electricity grids. Development of new standards and technology for the interoperability of smart grid systems with increased reliability and cybersecurity protection would be further supported across borders. Comprehensive control and monitoring of the grid would reduce the need for curtailment of renewables and enable