Special Report Improving the security  
of energy supply by 
developing the internal 
energy market: more 
efforts neededEN 2015  NO 16
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Improving the security 
of energy supply by 
developing the internal 
energy market: more 
efforts needed
(pursuant to Article 287(4), second subparagraph, TFEU)Special ReportEN 2015  NO 16
02
 Audit team
The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or 
management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks 
to performance or compliance, the level of income or spending involved, forthcoming developments and political and 
public interest.
This performance audit was produced by Audit Chamber II — headed by ECA Member Henri Grethen — which specialises 
in structural policies, transport and energy spending areas. The audit was led by ECA Member Phil Wynn Owen,  
supported by the head of his private office, Gareth Roberts, and Katharina Bryan, attaché; Pietro Puricella, head of unit; 
Erki Must, head of task; Jolita Korzunienė, Pekka Ulander, Svetoslav Hristov, Aleksandra Klis-Lemieszonek and Andrew 
Judge, auditors.
From left to right:  P . Puricella, A. Judge, G. Roberts, J. Korzunien ė, P . Ulander, K. Bryan, E. Must,  
A. Klis-Lemieszonek, P . Wynn Owen and S. Hristov.
03
 Contents
Paragraph
 Glossary
I–VIII  Executive summary
1–19  Introduction
5–8 The security of energy supply and its relation with the internal energy market
9–13  The internal energy market legal framework
14–19  Investment needs and EU financial tools in the field of energy infrastructure
20–26  Audit scope and approach
27–112  Observations
27–71  The objective of completing the internal energy market by 2014 was not achieved
30–42  Problems remain with the implementation of the EU legal framework for the internal energy market
43–54  Important differences in how Member States organise their energy markets can hold back the further 
development of the internal energy market
55–71  Though progress in joining the markets in Europe has been made, the full price effects of the internal 
energy market have not yet been realised
72–98  Energy infrastructure in Europe is generally not yet designed for fully integrated markets and 
therefore does not currently provide effective security of energy supply
73–81  The infrastructure within and between many Member States is not yet suited for the internal energy market
82–87  There is no overall EU-level needs assessment to provide the basis for prioritising investments in energy 
infrastructure in the EU
88–98 Developing cross-border infrastructure requires cooperation amongst neighbouring Member States
04 Contents
99 –112  Financial support from the EU budget in the field of energy infrastructure has made only a limited 
contribution to the internal energy market and security of energy supply
100–109  The EU has several funding instruments to support energy infrastructure projects, but none have the 
internal energy market as a primary objective
110 –112  Many EU co -financed energy infrastructures have yet to have impact on the internal energy market
113 –127  Conclusions and recommendations
 Annex I —  (a) Average retail electricity prices with taxes for household consumers: 1st quarter 
of 2015 in euro cents per 1 KWh
  (b) Average electricity prices without VAT and non -recoverable taxes for industrial 
consumers: 1st quarter of 2015, euro cents per 1 kWh
 Annex II —  Assessed gas sourcing prices in EU Member States — 2014 yearly average — euro  
per MWh
 Annex III —  Member States participation in the ACER working groups, January 2013 to 
May 2015
 Reply of the Commission
05
 Glossary
Agency for the Cooperation of Energy Regulators (ACER): an EU agency with its seat in Ljubljana, Slovenia, 
which was created in March 2011 under the Third Energy Package to further progress the completion of the internal 
energy market both for electricity and for natural gas. ACER is an independent European structure which fosters 
cooperation among European energy regulators.
Billion cubic metres (bcm) : a measure of gas volumes used in both production and trade.
The  Baltic Energy Market Interconnection Plan  (BEMIP): a regional initiative signed in 2009 for the integration 
of Estonia, Latvia and Lithuania into the European energy markets, to end their status as energy islands and to 
liberalise their energy markets.
Business -to-business trade (B2B): a commercial transaction between two businesses, such as between 
a manufacturer and a wholesaler, or between a wholesaler and a retailer.
Comitology : a committee system which oversees the delegated acts implemented by the European Commission. 
The committees are composed of representatives of the Member States and have the mandate to regulate certain 
delegated aspects of the secondary legislation adopted by the Council and, where co -decision applies, the 
European Parliament. The Commission chairs these meetings and provides the secretariat.
Connecting Europe Facility (CEF): the CEF provides, since 2014, financial aid to three sectors — energy, transport 
and information and communication technology (ICT). In these three areas, the CEF identifies investment priorities 
that should be implemented in the coming decade, such as electricity and gas corridors, use of renewable energy, 
interconnected transport corridors and cleaner transport modes, high speed broadband connections and digital 
networks.
Energy Interconnector : a structure which enables electricity or gas to flow between national networks. These 
structures can be owned and operated by one or more transmission system operators.
Energy Island : a region with insufficient links to energy transmission networks. As a result, they are often 
dependent on a single external energy source or supplier.
European Energy Programme for Recovery (EEPR): the EEPR was introduced in late 2008 in response to the 
economic and financial crisis. It provides funding to projects which aim to make energy supplies more reliable and 
to reduce greenhouse emissions.
European Networks of Transmission System Operators for Electricity and Gas (ENTSO -E/ENTSO -G): these 
networks represent all electricity/gas TSOs in the EU and others connected to their networks, for all regions, and for 
all their technical and market issues.
European Fund for Strategic Investments (EFSI): the EFSI aims to mobilise, over the period 2015 to 2017, at least 
315 billion euros in private and public long -term investment across the EU. The EFSI will be established within 
the European Investment Bank (EIB) as a trust fund, with unlimited duration, to finance riskier parts of projects. 
A guarantee up to 16 billion euro backed by the EU budget will compensate the additional risk taken by the 
EIB. Member States can contribute to the EFSI. The EFSI may fund projects of common interest (PCIs) or other 
interconnection projects. Energy infrastructure is one of the priorities of the fund.
European Structural and Investment Funds (ESIF): a common framework under which the European Regional 
Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF), the European Agricultural Fund 
for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF) operate.
06 Glossary
Internal Energy Market : the internal energy market is the regulatory and infrastructure set -up that should allow 
the free flow and borderless trade of gas and electricity across the territory of the EU.
Liquefied natural gas (LNG): LNG is a natural gas that has been converted to liquid form for storage or transport.
National regulatory authorities (NRAs): NRAs are Member States’ public organisations which check that the 
market has fair access rules and in some Member States set wholesale and retail prices for consumers. They provide 
analyses that are used to determine the tariffs charged by the TSOs.
Network codes and guidelines : these are sets of rules which apply to one or more parts of the energy sector. They 
are intended as a tool to achieve the internal energy market by complementing existing national rules to tackle 
cross -border issues in a systematic manner.
Projects of common interest (PCIs): in October 2013 the Commission adopted a list of 248 key energy 
infrastructure projects. PCIs should benefit from faster and more efficient permit -granting procedures and 
improved regulatory treatment. They may also be supported within the Connecting Europe Facility.
Security of energy supply : uninterrupted availability of energy sources at an affordable price, as defined by the 
International Energy Agency.
Ten -year network development plans (TYNDPs): TYNDPs for electricity and gas are biannual, non -binding 
documents published by ENTSO -E and ENTSO -G. TYNDPs are designed to increase information and transparency 
regarding the investments in the electricity and gas transmission systems.
Trans -European Energy Network (TEN -E): the TEN -E programme aims at developing the internal energy market 
through interconnection, interoperability and development of trans -European networks for transporting electricity 
and gas as well as ensuring the security and diversification of supply and promoting sustainable development.
Third Energy Package : a legislative package concerning energy markets in the EU. It sets out the main rules for the 
functioning of the internal energy market, including cross-border trade and the institutional set -up.
Transmission system operator (TSO): an entity entrusted with transporting energy in the form of natural gas or 
electrical power on a national or regional level, using fixed infrastructure.
Unbundling : the process of separating the transmission activities of a vertically integrated energy company from 
other activities, such as generation and distribution.
07
 Executive  
summary
I
The European Union (EU) has, over the past 20 years, 
developed a comprehensive approach to energy and 
climate policy. This policy continues to evolve in the 
context of the growing challenge of climate change, 
and a changing international context that includes 
political developments at the EU borders and trade 
agreements with external partners.
II
Security of energy supply has become a major issue in 
Europe over the past decade. Governmental and pub -
lic concern has focused on the risks associated with 
dependence on external sources, political uncertainty 
in external supplier and transit states, and the poten -
tial for disruptions to energy supplies. There is also 
growing recognition that transformations within the 
EU energy system, due to shifting demand patterns 
and the expansion of renewable energy sources, raises 
new challenges for the continuous supply of energy to 
end-users at an affordable price.
III
The EU has adopted a range of legislation to support 
the development of an internal energy market. The 
internal energy market is the regulatory and infra -
structure set -up that should allow the free flow and 
borderless trade of gas and electricity across the ter -
ritory of the EU. The most recent legislative package, 
known as the Third Energy Package, set an objective 
for achieving the internal market by 2014. The EU 
budget also provided 3.7  billion  euro of financing for 
energy infrastructure between 2007 and 2013, with 
a further approximately 7.4 billion euro expected to be 
provided between 2014  and  2020.
IV
Our audit sought to determine whether implementa -
tion of internal energy market policy measures and 
EU spending on energy infrastructure have provided 
security of energy supply benefits effectively.
08 Executive summary 
V
The EU’s objective of completing the internal energy 
market by 2014 was not reached. Energy infrastruc -
ture in Europe is generally not yet designed for fully 
integrated markets and therefore does not currently 
provide effective security of energy supply. Financial 
support from the EU budget in the field of energy 
infrastructure has made only a limited contribution 
to the internal energy market and security of energy 
supply.
VI
Problems remain with the implementation of the EU 
legal framework for the internal energy market. Impor -
tant differences in how Member States organise their 
energy markets can hold back the further develop -
ment of the internal energy market. Though progress 
in joining the markets in Europe has been made, the 
full price effects of the internal energy market have 
not yet been realised. We recommend that:
Recommendation 1 : with the internal energy mar -
ket not yet having been completed, the Commission 
should complete its assessments and initiate any 
necessary infringement procedures against Member 
States by the end of 2016.
Recommendation 2 :
(a) Member States should make sure that their nation -
al regulatory authorities (NRAs) are independent 
and do not face restrictions to the scope of their 
role. The NRAs should have sufficient resources 
available for their activities, including allowing 
them to participate fully in EU -level cooperation 
activities;
(b) the Commission should assure that the Agency for 
the Cooperation of Energy Regulators (ACER) has 
the necessary powers to obtain from key institu -
tions in the Member States the information it 
needs to carry out the tasks assigned to it.Recommendation 3 : the Commission should pro -
mote widespread development of transparent trading 
mechanisms for both gas and electricity. This should 
include facilitating and supporting the establish -
ment of exchanges in Member States where they do 
not currently exist or where B2B trading mechanisms 
dominate.
Recommendation 4 : the Commission should expe -
dite the process of comitology, with a view to secur -
ing approval of the electricity network codes by the 
end of 2015. It should also encourage ACER and the 
ENTSOs to support early implementation of network 
codes by Member States in the framework of regional 
cooperation initiatives.
Recommendation 5 : the Commission should:
(a) consider establishing electricity interconnection 
objectives based on market needs rather than on 
fixed national production capacity;
(b) reassess the potential costs and benefits of the gas 
target model, and consider, in the light of uncer -
tain demand, whether there are alternatives to the 
extensive construction of gas pipelines, such as 
the installation of strategically placed LNG termi -
nals to serve one or more national markets using 
internal energy market-compatible solutions. This 
should be based on a comprehensive EU-level 
needs assessment.
09 Executive summary 
VII
The infrastructure within and between many Member 
States is not yet suited for the internal energy mar -
ket. There is no overall EU-level needs assessment to 
provide the basis for prioritising investments in energy 
infrastructure in the EU. Developing cross- border 
infrastructure requires cooperation amongst neigh -
bouring Member States. We recommend that:
Recommendation 6 : the Commission should:
(a) identify cross -border energy infrastructure that is 
not being used to its full potential to support the 
internal energy market, either because it is tied up 
in long-term bilateral contracts not allowing third 
party access, or because its technical capacities, 
such as reverse flows for gas, are not being used;
(b) work with stakeholders in the Member States in 
order to improve the extent to which such infra -
structure is actually used continuously for the 
benefit of the internal energy market;
(c) explore the benefits for setting up regional 
transmission system operators (TSOs) as a means 
to encourage and manage efficiently energy 
flows across borders, making the most of existing 
infrastructure.
Recommendation 7 : the Commission should:
(a) draw up a comprehensive EU-level energy in -
frastructure needs assessment as a basis for the 
development of the internal energy market; this 
should function as a reference to other strategic 
documents such as TYNDPs;
(b) put in place, to support the needs assessment, 
a capacity to model energy markets including 
a broad range of demand projections, either 
in-house or in ACER;
(c) work with ENTSO -E and ENTSO -G so that the 
needs assessment functions as an input for inter -
nal energy market-related infrastructure planning 
in the EU, including ten-year network develop -
ment plans (TYNDPs).VIII
The EU has several funding instruments to support 
energy infrastructure projects, but none have the 
internal energy market as a primary objective. EU 
co-financed energy infrastructures have a limited 
impact on the internal energy market. We recommend 
that:
Recommendation 8 : the Commission should refine 
its planning procedures and in particular the prior -
itisation and funding of projects of common interest 
(PCIs) in the light of a comprehensive EU-level energy 
infrastructure needs assessment;
Recommendation 9 : the Commission should make 
legislative proposals on how to make its decisions to 
select energy infrastructure projects for funding sub -
ject to the proper and continuous functioning of the 
energy market in the Member States.
10
 Introduction
01 
The European Union has, over the past 
20 years, developed a comprehensive 
approach to energy and climate poli -
cy1. This policy continues to evolve in 
the context of the growing challenge 
of climate change, and a changing 
international context that includes po -
litical developments at the EU borders 
and trade agreements with external 
partners.
02 
The mandate for developing an EU 
policy in the energy policy area is 
set out in Article 4 of the Treaty on 
the Functioning of the European 
Union (TFEU), which defines energy 
as a shared competence between the 
EU and the Member States. Article 194 
states that the objectives of EU energy 
policy are to:
(a) ensure the functioning of the en -
ergy market;
(b) ensure security of energy supply in 
the Union;
(c) promote energy efficiency and 
energy saving and the develop -
ment of new and renewable forms 
of energy; and
(d) promote the interconnection of 
energy networks.
03 
The Member States take decisions 
about their national energy mix, the 
taxes and surcharges that apply to gas 
and electricity, and oversee the func -
tioning of the electricity and natural 
gas markets within their borders.04 
Security of energy supply has become 
a major issue in Europe over the past 
decade. Governmental and public 
concern has focused on the risks asso -
ciated with dependence on external 
sources, political uncertainty in ex -
ternal supplier and transit states, and 
the potential for disruptions to energy 
supplies. There is also growing rec -
ognition that transformations within 
the EU energy system, due to shifting 
demand patterns and the expansion of 
renewable energy sources, raise new 
challenges for the continuous supply 
of energy to end-users at an affordable 
price.1 These include, but are not 
limited to, Commission 
communications on EU energy 
policy published in 
1995 and 2007, the 
2020 and 2030 Energy and 
Climate packages, and the 
recent Commission 
communication on Energy 
Union.
11 Introduction
The security of energy 
supply and its relation 
with the internal energy 
market
05 
The European Commission has con -
sistently promoted the development 
of internal electricity and natural 
gas markets as the basis for securing 
energy supplies within the Union. The 
internal energy market is the regu -
latory and infrastructure set -up that 
should allow the free flow and border -
less trade of gas and electricity across 
the territory of the EU. In the most 
recent Commission communication 
on European energy security strategy, 
which was published on 28 May 20142, 
the Commission states that: ‘The key 
to improved energy supply lies first in 
a more collective approach through 
a functioning internal energy market 
and greater cooperation at regional 
and European levels, in particular for 
coordinating network developments 
and opening up markets …’
06 
The development of open, competitive 
and fully functioning internal markets 
for electricity and natural gas supplies 
has the potential to deliver security 
of supply benefits for the Union as 
a whole. It opens up possibilities for 
greater supply diversification, miti -
gating local supply risks, liquid and 
flexible trading within and between 
Member States, and the delivery of 
energy supplies on an economically 
efficient basis. Security of supply is 
a public good which comes at a cost, 
and achieving this in the most cost - 
effective manner is a core objective of 
EU energy policy.07 
In December 2014, the Council of the 
European Union reiterated their sup -
port for the completion of the inter -
nal energy market, stressing that, ‘all 
efforts must be mobilised to achieve 
the objective of a fully functioning and 
connected internal energy market as 
a matter of urgency’3.
08 
In order to develop an internal energy 
market, it is necessary both to estab -
lish rules for how the gas and electrici -
ty energy markets will function and to 
seek to ensure that there is adequate 
infrastructure in place for this purpose.2 COM(2014) 330 final of 
28 May 2014 ‘European Energy 
Security Strategy’.
3 Council of the European Union 
Conclusions of the 
9 December 2014 Transport, 
Telecommunications and 
Energy Council meeting.
12 Introduction
The internal energy 
market legal framework
09 
Rules for the functioning of the inter -
nal energy market take several forms. 
The first stage is the development of 
a legislative framework which estab -
lishes the principles for the devel -
opment of internal electricity and 
natural gas markets and the regulatory 
conditions under which energy should 
be traded. This legislative framework 
has been developed through three 
‘packages’ of EU secondary legislation 
(see Figure 1 ).10 
The third energy package was com -
plemented in 2011 by the regulation 
on wholesale4 energy market integ -
rity and transparency (REMIT)5. This 
regulation targets the issues of market 
integrity and market abuse, and pro -
vides for the monitoring of wholesale 
energy markets in order to detect 
and deter market manipulation. It is 
supposed to be fully implemented by 
April 2016.Figure 1Development of the three energy packages
Core components
Directive 2009/72/EC
Directive 2009/73/ECRegulation (EC) No 713/2009Regulation (EC) No 714/2009Regulation (EC) No 715/2009 Third package
2009Second package
2003First package
1996 / 1998
Coordination of TSOs by
ENTSO-E and ENTSO-GTen year Network
Development 
PlansTSO as a
separate entityCoordination of
regulators by
ACERLegalIndependent
National RegulatorRegulated 
access only100 %AccountingAny competent
authorityNegociated,
Regulated or
Single BuyerGradual
and restrictedNetwork
DevelopmentUnbundling
of TSOsMarket
regulation Third-Party
AccessMarket
opening
Source:  European Court of Auditors.4 Wholesale takes place 
between the importers or 
producers of energy and the 
providers that sell the energy 
products to final customers.
5 Regulation (EU) No 1227/2011 
of the European Parliament 
and of the Council of 
25 October 2011 on wholesale 
energy market integrity and 
transparency (OJ L 326, 
8.12.2011, p. 1).
13 Introduction
11 
There are also two EU legislative 
measures which address directly the 
security of electricity and gas supplies. 
These measures are based on main -
taining the proper and continuous 
function of the internal energy market, 
even under exceptional circumstances:
(a) the  electricity supply direc -
tive6, which was adopted in 2005, 
commits Member States to the 
establishment of an adequate 
level of generation capacity, an 
adequate balance between supply 
and demand, and an appropriate 
level of interconnection with other 
Member States; and
(b) the  security of natural gas 
supply regulation , which was 
adopted in 20107, sets out sup -
ply and infrastructure standards 
and defines the responsibilities of 
natural gas undertakings, Member 
States and the Commission for 
both preventing and reacting to 
supply disruptions.12 
This legislative framework sets out the 
basic principles of the internal energy 
market, but does not in itself consti -
tute a practical template for energy 
markets. To this end, target models 
for electricity and gas were initiat -
ed by the Commission to realise the 
objective of price convergence8. These 
models have been further developed 
with the involvement of ENTSOs and 
ACER and representatives of the en -
ergy industry and are currently in the 
process of being fixed in a framework 
of guidelines and network codes which 
specify the technical rules for how 
these markets should function:
(a) The  Electricity Target Model  
envisages the coupling of national 
markets into a single pan -Euro -
pean market9. Besides facilitating 
price convergence, the market 
coupling should assure the optimal 
use of cross -border transmission.
(b) The  Gas Target Model  promotes 
price convergence via hub-based 
trading10. It foresees the develop -
ment of entry–exit zones and 
liquid virtual trading points.6 Directive 2005/89/EC of the 
European Parliament and of 
the Council of 18 January 2006 
concerning measures to 
safeguard security of 
electricity supply and 
infrastructure investment (OJ 
L 33, 4.2.2006, p. 22).
7 Regulation (EU) No 994/2010 
of the European Parliament 
and of the Council of 
20 October 2010 concerning 
measures to safeguard 
security of gas supply and 
repealing Council Directive 
2004/67/EC (OJ L 295, 
12.11.2010, p. 1).
8 For further information about 
the target models’ develop -
ment see: https://ec.europa.
eu/energy/en/consultations/
consultation-generation-ade -
quacy-capacity-mecha -
nisms-and-internal-mar -
ket-electricity
9 Market coupling describes the 
linking of separate day -ahead 
electricity spot markets using 
available cross -border 
transmission capacity. 
A specific algorithm called 
EUPHEMIA has been 
developed to implement 
electricity markets’ coupling in 
European Union.
10 A gas hub is a physical or 
virtual trading point where 
gas supplies are priced 
according to the demand in 
the region. Hub prices move 
based on the changing 
interaction between gas 
demand and supply.
14 Introduction
Roles and responsibilities of the 
main players in the EU energy 
policy field
13 
The process of developing, implement -
ing and regulating the internal energy 
market involves a range of public and 
private actors, which have particular 
roles and responsibilities.
(a) In the European Commission , the 
Directorate -General for Energy (DG 
Energy) is responsible for develop -
ing and implementing European 
energy policy within the scope of 
Article 194 of the TFEU. This in -
cludes ensuring the functioning of 
the energy market and the security 
of energy supply within the Union, 
and promoting the interconnec -
tion of energy networks. As far 
as the internal energy market is 
concerned, the Commission:
(i) proposes policy documents 
and legislative measures as 
required;
(ii) monitors the transposition 
of the Energy Packages into 
national law;
(iii) adopts network codes with 
Member States through the 
comitology process.
(b) Energy markets should be moni -
tored by national regulatory 
authorities  (NRAs) that are fully 
independent of Member State 
governments. The requirement 
of establishing the NRAs was 
introduced in the Second Energy 
Package. The Third Package further 
enhanced their role.(c) The Agency for the Cooperation 
of Energy Regulators (ACER), 
established under the Third Energy 
Package, should promote and facil -
itate cooperation amongst NRAs. 
ACER develops framework guide -
lines from which network codes 
are derived, and adopts opinions 
on a range of energy market mat -
ters. ACER does not possess any ex -
ecutive powers, so its decisions are 
not directly binding on the market 
participants.
(d) Transmission system operators  
(TSOs) are entities responsible for 
transporting energy in the form of 
natural gas or electricity on a na -
tional or regional level, using fixed 
infrastructure. They are expected 
to cooperate with each other 
within the framework of Euro -
pean Networks for Transmission 
System Operators for Electricity 
and Gas (ENTSO–E and ENTSO -G). 
ENTSOs are responsible for devel -
oping the network codes based 
on ACER’s framework guidelines 
and preparing ten-year network 
development plans (TYNDPs).
15 Introduction
Investment needs and EU 
financial tools in the field 
of energy infrastructure
14 
Investments in energy infrastructure 
are needed so that security of supply 
benefits through the internal energy 
market can be realised. In the EU, ener -
gy infrastructure is mainly financed by 
TSOs through consumer tariffs under 
the ‘user pays’ principle. The TSO’s own 
resources used to finance infrastruc -
ture investments can range from as 
low as 20 % of project costs, up to the 
full cost of the investment required. 
According to Commission figures from 
2011, TSOs invested 9.1 billion euro 
per annum in energy infrastructure 
between 2005 and 2009. This included 
5.8 billion euro per annum for electric -
ity infrastructure and 3.3 billion euro 
per annum for gas infrastructure.
15 
The  European Investment Bank (EIB)  
is the largest supranational provider of 
loans and guarantees to energy infra -
structure projects in the EU. Between 
2007 and 2012, the EIB provided loans 
of 29.4 billion euro for investments 
in the modernisation and develop -
ment of European electricity and gas 
networks11.16 
Energy infrastructure is also one of 
the priorities of the newly established 
European Fund for Strategic Invest -
ments (EFSI)12. This fund combines 
capital from the EU budget and the EIB 
with a view to leveraging public and 
private investment of at least 315 bil -
lion euros across the EU13.
17 
Compared to TSOs’ own investment 
and funding available from the EIB 
and EFSI, the EU budget  is a relative -
ly small provider of investments in 
energy infrastructure. Approximately 
3.7 billion euro was allocated from the 
EU budget to energy infrastructure 
between 2007 and 2013, and a further 
7.4 billion euro is envisaged for the 
2014-2020 period, as shown in Table 1 .Table 1 Funds allocated to energy infrastructure for the period 2007-2020 (in million euro)
Sector TEN‑E EEPR CEF Energy ESIF Total
2007‑2013Electricity 81 905 498 1 484
Gas 64 1 363 814 2 241
TOTAL 145 2 268 1 312 3 725
2014‑2020 Electricity and Gas 5 350 2 00017 350
TOTAL 2007 ‑ 2020 145 2 268 5 350 3 312 11 075
1 Indicative figure presented to the audit team by DG Regional and Urban Policy.
Source:  European Court of Auditors, based on DG Regional and Urban Policy databases, EEPR implementation reports.11 European Investment Bank, 
‘Energy Lending Criteria’, 
23 July 2013.
12 Regulation (EU) 2015/1017 of 
the European Parliament and 
of the Council of 25 June 2015 
on the European Fund for 
Strategic Investments, the 
European Investment 
Advisory Hub and the 
European Investment Project 
Portal and amending 
Regulations (EU) No 1291/2013 
and (EU) No 1316/2013.
13 Opinion No 4/2015 concerning 
the proposal for a Regulation 
of the European Parliament 
and of the Council on the 
European Fund for Strategic 
Investments and amending 
Regulations (EU) No 1291, 
12013 and (EU) No 1316/2013 
(OJ 121, 15.4.2015, p. 1).
16 Introduction
18 
Allocations have been made through 
several funds, managed by the Com -
mission, which differ in terms of their 
relative size, the kinds of projects they 
finance, and the type of financing they 
provide (see Table 1) :
(a) Trans -European Networks for 
Energy (TEN -E) established in 
199614 was an instrument, man -
aged by the Commission, which 
financed electricity and natural gas 
infrastructure. The 201315 TEN -E 
regulations established criteria for 
the identification of projects of 
common interest (PCIs);
(b) the  European Energy Pro -
gramme for Recovery’s  (EEPR) 
was established in 2009 to stimu -
late the EU economy through 
infrastructure investments16. EEPR 
financed the agreed list of projects 
under the direct management of 
the Commission. The implemen -
tation of funded projects is still 
ongoing, but no new projects will 
be supported from this scheme;
(c) the  Connecting Europe Facility 
(CEF)17 was established to provide 
investments in the domains of 
transport, energy and telecom -
munications for the 2014-2020 
period18. The fund is designed to 
attract private investment through 
a number of tools, including 
grants, special loans, guarantees, 
debt and equity instruments. The 
co-financing via grants is based 
on open calls for proposals and is 
managed by the Innovations and 
Networks Executive Agency (INEA); 
and(d) financing for energy infrastructure 
is also provided by the European  
Structural and Investment Funds 
(ESIF)19. This financing is based 
on national operational pro -
grammes that are approved by the 
Commission.
19 
The Commission estimated in 2010 
that Europe’s energy sector would 
require 1  trillion  euro of investment by 
2020. Of this, approximately 210 bil -
lion euro would be needed for electric -
ity and gas networks of Euro-  
pean importance20. More recently, 
the International Energy Agency (IEA) 
has estimated that the total invest -
ment needed for electricity and gas 
networks in the EU will rise to 931 bil -
lion euro over the 2014-2035 period21.14 The TEN-E programme was 
established by the following 
legal acts: Decision 
No 1364/2006/EC of the 
European Parliament and of 
the Council of 
6 September 2006 laying 
down guidelines for 
trans -European energy 
networks and repealing 
Decision No 96/391/EC and 
Decision No 1229/2003/EC (OJ 
L 262, 22.9.2006, p. 1)
15 Regulation (EU) No 347/2013 
of the European Parliament 
and of the Council of 
17 April 2013 on guidelines for 
trans -European energy 
infrastructure and repealing 
Decision No 1364/2006/EC 
and amending Regulation (EC) 
No 713/2009, No 714/2009, 
(EC) No 715/2009 (OJ L 115, 
25.4.2013, p. 39) is intended to 
facilitate the timely 
development and 
interoperability of 
trans -European energy 
networks (TEN -E).
16 Regulation (EC) No 663/2009 
of the European Parliament 
and of the Council of 
13 July 2009 establishing 
a programme to aid economic 
recovery by granting Union 
financial assistance to projects 
in the field of energy (OJ L 200, 
31.7.2009, p. 31).
17 In accordance with Regulation 
(EU) 2015/1017 the European 
Fund for Strategic 
Investments, the financial 
envelope for CEF energy 
sector for the period 
2014-2020 was decreased by 
500 million euros (from 5 850 
million to 5 350 million euros) 
in order partly to finance the 
contribution from the general 
budget of the Union to EFSI.
18 Regulation (EU) No 1316/2013 
of the European Parliament 
and of the Council of 
11 December 2013 
establishing the Connecting 
Europe Facility, amending 
Regulation (EU) No 913/2010 
and repealing Regulations (EC) 
No 680/2007 and (EC) No 
67/2010 (OJ L 348, 20.12.2013, 
p. 129).
19 Regulation (EU) No 1303/2013 
of the European Parliament 
and of the Council of 
17 December 2013 laying 
down common provisions on 
the European Regional 
Development Fund, the 
European Social Fund, the 
Cohesion Fund, the European 
17
 Audit scope and approach
20 
Through this audit the Court sought 
to determine whether implementa -
tion of internal energy market policy 
measures and EU spending on energy 
infrastructure have provided security 
of energy supply benefits effectively.
21 
In particular we examined whether:
 ο the Commission and the Member 
States have ensured implementa -
tion of internal energy market  
policies, thereby improving the 
security of energy supply;
 ο the energy infrastructure  in 
Europe is suited for fully integrated 
markets, thereby providing effec -
tive security of energy supply; and
 ο the EU financial support  for en -
ergy infrastructure has effectively 
contributed to internal energy 
market development.
22 
The audit fieldwork was carried out 
from mid-2014 until mid-2015.
23 
Our audit focused on the transport 
of gas through pipelines; storage, 
including LNG terminals; and electric -
ity transmission. We did not cover the 
generation of energy22 nor energy effi -
ciency23. Also not covered were energy 
distribution systems to final consum -
ers, energy poverty, energy taxes 
and subsidies, and the 2020 and 2030 
energy and climate policy targets.24 
Our audit covered policy measures and 
funding from 2007. We took a regional 
approach and examined case studies 
in six Member States — Bulgaria, Esto -
nia, Spain, Lithuania, Poland and Swe -
den. We analysed the regional markets 
and the extent of the interconnections 
between these Member States and 
their neighbours.
25 
In these case studies, we assessed how 
investment needs have been deter -
mined, implementation of internal 
energy market principles, cross -border 
cooperation aspects and the rationale 
behind project proposals. This selec -
tion provided a wide geographical 
representation from across the EU. 
Case studies included 15 examples 
of specific EU co -financed projects. 
The audit work for each case study 
involved interviews with Member State 
and EU officials.
26 
We also identified, where possible, 
good practices which could be shared 
amongst stakeholders in other Mem -
ber States.Agricultural Fund for Rural 
Development and the 
European Maritime and 
Fisheries Fund and laying 
down general provisions on 
the European Regional 
Development Fund, the 
European Social Fund, the 
Cohesion Fund and the 
European Maritime and 
Fisheries Fund and repealing 
Council Regulation (EC) 
No 1083/2006 (OJ L 347, 
20.12.2013, p. 320).
20 COM(2010) 677 final of 
17 November 2010 ‘Energy 
infrastructure priorities for 
2020 and beyond — 
A blueprint for an integrated 
European energy network’.
21 International Energy Agency 
World Investment Outlook 
2014. Paris: OECD/IEA, p. 167.
22 On generation see Special 
Report No 6/2014 ‘Cohesion 
policy funds support to 
renewable energy generation 
— has it achieved good 
results?’ ( http:/eca.europa.eu ).
23 On consumption see 
SR 21/2012 ‘Cost -effectiveness 
of Cohesion Policy 
Investments in Energy 
Efficiency’ ( http:/eca.europa.
eu).
18
 Observations
The objective of 
completing the internal 
energy market by 2014 
was not achieved
27 
Since 2007, the internal energy mar -
ket has been at the centre of EU-level 
energy policy development. The Third 
Energy Package, adopted in 2009, re -
quired the transposition of the gas and 
electricity directives by 3 March 201124. 
However, this objective was not 
achieved in that year. In addition, three 
Commission regulations which form 
part of the Third Energy Package were 
adopted in 200925.
28 
In 2011, the Council restated its com -
mitment to the internal energy market, 
stating that it ‘should be completed by 
2014 so as to allow gas and electricity 
to flow freely’26. By December 2014, 
with the objective still not having been 
achieved, the Council again reaffirmed 
the ‘urgent need for effective and 
consistent implementation and appli -
cations of the provisions set out in the 
Third Energy Package by all Member 
States ...’27.29 
The following are important for 
achieving this objective:
 ο implementing the EU regulatory 
framework of the internal energy 
market;
 ο harmonising a patchwork of local 
and national markets;
 ο achieving price convergence; and
 ο availability of appropriate energy 
infrastructure (see as from para -
graph 72).24 For electricity, Article 49(1) of 
Directive 2009/72/EC of the 
European Parliament and of 
the Council of 13 July 2009 
concerning common rules for 
the internal market in 
electricity and repealing 
Directive 2003/54/EC (OJ L 211, 
14.8.2009, p. 55). For gas, 
Article 54(1) of Directive 
2009/73/EC of the European 
Parliament and of the Council 
of 13 July 2009 concerning 
common rules for the internal 
market in electricity and 
repealing Directive 2003/55/
EC (OJ L 211, 14.8.2009, p. 94).
25 Regulation (EC) No 714/2009 
on conditions for access to the 
network for cross -border 
exchanges in electricity and 
repealing Regulation (EC) 
No 1228/2003. Regulation (EC) 
No 715/2009 on conditions for 
access to the natural gas 
transmission networks and 
repealing Regulation (EC) 
No 1775/2005. Regulation (EC) 
No 713/2009 of the European 
Parliament and of the Council 
of 13 July 2009 establishing an 
Agency for the Cooperation of 
Energy Regulators.
26 Conclusions adopted by the 
European Council on 
4 February 2011.
27 Council conclusions, 
Transport, 
Telecommunications and 
ENERGY Council meeting, 
Brussels, 9 December 2014.
19 Observations
Problems remain with the 
implementation of the EU 
legal framework for the 
internal energy market
30 
The Third Energy Package includes 
both regulations that are directly 
applied, and directives that need 
to be integrated into the legislative 
framework of each Member State. The 
Commission monitors this progress by 
carrying out:
(a) transposition checks , which seek 
to verify whether the Member 
States have updated their national 
law with a view to incorporating 
the provisions of the directives28. 
Where the Commission deems 
that a Member State has not done 
so, it may open an infringement 
procedure which can lead to a case 
being filed before the European 
Court of Justice; and
(b) conformity checks , which assess 
whether the changes that have 
been made in practice are consist -
ent with the provisions of direc -
tives. To facilitate this assessment, 
the Commission sends requests 
for information and clarification 
to the Member States — this 
exchange of information is done 
via a tool known as ‘EU -pilots’. 
Where the Commission assesses 
that the changes made in practice 
in a Member State do not reflect 
properly the provisions of the 
directives it may open a formal 
infringement procedure under 
Article 258 of the TFEU.28 The Commission’s assessment 
is based on official documents 
from the Member States, 
contractor’s reports, country 
desk knowledge, and market 
monitoring via media outlets, 
and specific requests to third 
parties.
20 Observations
31 
Table 2  provides details of the status 
of these checks, including infringe -
ment procedures in respect of the 
Third Energy Package legislation as at 
30 June 2015. This analysis shows that 
there remains a long way to go before 
the Third Energy Package could be 
deemed to be fully implemented in 
the Member States. By 30 June 2015:
(a) in respect of non -transposition  
of the provisions of Third Energy 
Package, the Commission deemed 
it necessary to launch infringe -
ments procedures against 19 out 
of 28 Member States. All of these 
procedures had been closed by 
30 June 2015;
(b) regarding non -conformity with 
the provisions of Third Energy 
Package, in 2013, the Commission 
began the process of requesting 
information from Member States 
and in some cases launching in -
fringement procedures:
(i) for 10 Member States, the 
Commission had completed 
its assessment, and opened in -
fringement procedures under 
Article 258 of the TFEU. All of 
these remain open;
(ii) for four  Member States, the 
Commission had requested 
information, via an EU pilot, 
but had not yet completed its 
assessment; and
(iii) for 14 Member States, the 
Commission had not yet sent 
a request for information.32 
The provisions in the Third Energy 
Package, relevant to this audit, about 
which the Commission’s checks have 
revealed problems include:
 ο the functioning of the national 
regulators (see paragraphs 34 
to 36);
 ο the functioning of transmission 
system operators (see para -
graphs 37 to 42);
 ο issues related to different 
forms of price regulation (see 
paragraph 64).
33 
During the audit, we confirmed the 
existence of problems in these areas as 
set out in the following paragraphs.
21 Observations
Commission’s transposition and conformity checks of the Third Energy Package as at 
30 June 2015
Transposition checks Conformity checks
Commission’s transposi ‑
tion check completedInfringement procedure 
opened and closedCommission opened 
infringement procedureInfringement procedure 
closed
Belgium √ √ √ Not closed
Bulgaria √ √ No open procedure
Czech Republic √ N/A No open procedure
Denmark √ √ No open procedure
Germany √ N/A √ Not closed
Estonia √ √ No open procedure
Ireland √ √ No open procedure
Greece √ N/A No open procedure
Spain √ √ √ Not closed
France √ √ √ Not closed
Croatia √ N/A √ Not closed
Italy √ N/A √ Not closed
Cyprus √ √ No open procedure
Latvia √ N/A No open procedure
Lithuania √ √ No open procedure
Luxembourg √ √ √ Not closed
Hungary √ N/A √ Not closed
Malta √ N/A No open procedure
Netherlands √ √ No open procedure
Austria √ √ √ Not closed
Poland √ √ No open procedure
Portugal √ N/A No open procedure
Romania √ √ √ Not closed
Slovenia √ √ No open procedure
Slovakia √ √ No open procedure
Finland √ √ No open procedure
Sweden √ √ No open procedure
United Kingdom √ √ No open procedure
Note:   
—  ‘N/A’ means that no infringement procedure was opened, and the Commission will not open one in the future based on the transposition 
checks, which are now completed for all Member States.  
— ‘No open procedure’ means that no infringement procedure has been opened for the Member State in question. The Commission is reviewing 
the situation and may open infringement procedures in the future.  
— ‘Not closed’ means that an infringement procedure is currently ongoing but has not yet been closed.
Source:  European Court of Auditors based on information provided by the Commission.Table 2
22 Observations
Energy regulators face 
challenges in fulfilling their 
tasks on both the national and 
EU levels
34 
Evidence gathered as part of this audit 
indicated the following problems in 
the operations of the NRAs:
(a) the independence of the NRAs 
is crucial for ensuring that they 
can fulfil their tasks properly. The 
heads of regulatory bodies should 
be selected in a transparent man -
ner and provided with freedom to 
operate. These principles are not 
always followed, see examples in 
Box 1 .
(b) representatives of several of the 
NRAs highlighted risks concerning 
restrictions to the scope of their 
role . Some governments retained 
for themselves certain regulatory 
powers, or have imposed on NRAs 
methodologies for setting tariffs 
that could favour certain market 
participants. See examples in 
Box 2 .
(c) although the duties of the NRAs 
are the same for all Member States, 
the level of resources  available to 
different NRAs varies considerably. 
The number of people dealing 
with energy issues in NRAs we vis -
ited ranged from 21 to more than 
200. Some NRAs consider them -
selves to be sufficiently resourced 
to deal with all energy market 
aspects. However, due to resource 
constraints, some NRAs are better 
equipped than others to partici -
pate in international cooperation, 
which is crucial for the internal 
energy market (see paragraph 35). 
See examples in Box 3 .
23 Observations
Issues affecting the independence of NRAs
Bulgaria  — In the period 2009 to 2015, the Energy and Water Regulatory Commission (EWRC) chairperson 
was replaced by the government several times, including four times in 2013 alone. Independent regulators are 
required to set energy tariffs with reference to the actual cost base. However, EWRC set regulated electricity 
prices which have led to the situation in which the incumbent energy company is obliged to buy electricity 
at high prices and sell it at lower prices as a public provider, accumulating a deficit of approximately 800 mil -
lion euros between 2010 and the end of 2014.
Lithuania  — Since 2013, the Lithuanian Parliament has had the power to vote for replacing the head of the 
NRA if it does not approve the annual report of the energy regulator’s activities.
Restrictions to the scope of NRAs’ role
Spain  — The Ministry of Industry, Energy and Tourism fixes the gas and electricity tariffs, or system charges, 
that TSOs invoice infrastructure users for both gas and electricity. The NRA proposes a methodology for the 
elements that make up only 1/3 of the final grid tariffs, while the cost items comprising the other 2/3 are set 
only by the Spanish government. This raises questions about whether the NRA has adequate powers to exer -
cise this part of its regulatory functions.
Lithuania  — It is foreseen in the Third Energy Package that NRAs should have the responsibility for setting 
transmission or distribution tariffs in accordance with transparent criteria. However, in Lithuania, the gov -
ernment prescribes the methodology for setting gas and electricity transmission tariffs and retail prices are 
regulated. As a result, according to the NRA’s preliminary calculations, the two government -owned incumbent 
energy companies will be able to collect, up to 2024, via the tariffs, 167 million euro more than if the tariffs 
would have been set by the NRA.
Adequacy of resources of the NRAs
Sweden  — The Swedish Energy Inspectorate confirmed that, with its 100 sector specialists, it is fully equipped 
to participate in the work of ACER, including providing seconded national experts. It also confirmed that it has 
made all preparations to implement the REMIT regulation, including fully equipping the necessary team.
Estonia  — Only 21 out of the 61 employees of the National Competition Authority are involved in the energy 
field. The Commission raised, in its analyses of the Estonian energy market, concern about whether the NRA 
has sufficient resources adequately to regulate Estonia’s energy markets and to participate in the EU-level 
cooperation activities (see Annex III ).Box 1 Box 2 Box 3
24 Observations
35 
There is no one single EU-level energy 
regulator, but the NRAs are expected 
to cooperate within the framework of 
ACER (see paragraph 13). As EU ener -
gy markets become more integrated, 
solving cross- border regulatory issues 
is becoming increasingly important. 
Currently, ACER operates through 
a system of working groups including 
on electricity, gas, market integrity 
and monitoring to deal with these 
issues. Whilst this approach seeks 
to facilitate the direct involvement 
of Member States, in practice not all 
Member States participate to the same 
extent, and the more active Member 
States therefore have more influence 
in the work of these groups. Some of 
the NRAs indicated that resources, in 
the form of the existence of specialists 
who are capable of interacting in an 
international environment, as well as 
travel budgets, are constrained (see 
paragraph 34). Annex III  provides 
details of the participation of Member 
States’ representatives in ACER work -
ing groups.
36 
One of the duties of ACER is to analyse 
energy market trends and to provide 
policy advice to NRAs and EU insti -
tutions. However, it does not have 
powers to compel NRAs or Member 
States’ governments to provide it with 
relevant energy market data. Lack of 
data limits ACER’s ability to provide 
market analyses and policy advice for 
EU institutions and Member States’ 
NRAs.The unbundling of TSOs has 
been formally realised, but this 
has not always led to liberalised 
and competitive markets
37 
Electricity and gas are rarely consumed 
at the place where they are produced 
or enter into a country. In order for the 
vast amount of energy to reach the 
consumers, transmission systems have 
been developed. The organisations 
that manage these transmission sys -
tems are, in EU Member States, called 
transmission system operators.
38 
The process of separating transmission 
from other activities, such as gener -
ation and distribution within verti -
cally integrated energy companies, is 
known as unbundling. This began with 
the First and Second Energy Packag -
es. The Commission has confirmed 
that all Member States have formally 
transposed the Third Energy Package 
legislation, including the provisions 
relating to unbundling (see paragraph 
31). Figure 2  describes the role and the 
position of the TSO in the energy trade 
before and after unbundling.
25 Observations
39 
While the aim of unbundling and other 
measures was to create the regula-  
tory conditions for an internal energy 
market, a liberalised and competitive 
market has often not emerged. This 
is because many governments and 
incumbent energy companies have 
continued to restrict third -party net -
work access through regulations and 
technical restrictions. For instance new 
providers in the gas and electricity 
markets need access to transmission and storage facilities. Without such 
access, entry into national electricity 
or gas markets for new entrants is 
difficult. For example, in Poland the 
incumbent gas company established 
a special -purpose company in 2010, 
which is not considered by the NRA to 
be a TSO, which owns 100 % of un -
derground gas storage capacities in 
Poland. Such a situation carries the risk 
that this subsidiary is able to restrict 
market access of new gas providers to 
Poland29.Figure 2Energy trade and transmission before and after unbundling
After unbundling Before unbundling
Non-Regulated interactionRegulated interaction
ConsumerSeparate company or functionKey:Consumer ConsumerDistributionTransmission (TSOs)Grid operations
SalesTrading IntermediaryProduction / Import
Production / Import
Grid operations
Trading
SalesVertically integrated
company
Source:  Presentation by James Matthys -Donnadieu on 26 August 2014 in Summer School ‘Economics of Electricity Markets‘, University of Ghent.29 According to figures published 
in the 2014 national report of 
the Energy Regulatory Office 
of Poland, the incumbent gas 
provider holds approximately 
95 % of the gas wholesale 
market in Poland.
26 Observations
40 
As Member States’ networks be -
come increasingly interconnected via 
infrastructure, there is clearly a need 
for more cooperation between neigh -
bouring TSOs, including a coordinated 
approach to infrastructure develop -
ment, especially with relevance for 
security of supply. As an example 
of good cooperation, the Swedish 
electricity TSO is also able to manage 
the networks in Norway and Denmark 
because they have agreed to do so and 
because their networks are technically 
interconnected. This level of coopera -
tion is not, however, widespread.
41 
All TSOs have to be certified by their 
NRAs. The Commission has a role in 
this process and provides an opinion 
on draft decisions prepared by the 
NRAs. When providing its opinion, the 
Commission verifies whether the TSO 
has sufficient assets and can make 
independent investment decisions. 
There are still TSOs about which the 
Commission has not concluded the 
certification30.42 
There is no one single EU level TSO. 
TSOs cooperate with each other in the 
framework of ENTSO -E and ENTSO -G. 
The participation of national TSOs in 
ENTSOs activities varies, and this poses 
a risk that any technical solutions that 
are developed are more suitable for 
the parties most actively involved.30 As of 1 June 2015, the 
Commission had issued 109 
opinions. There are seven gas 
and three electricity TSOs still 
awaiting certification: gas 
TSOs for Estonia, Latvia, 
Finland, Italy, Hungary, 
Belgium (recertification) and 
United Kingdom 
(recertification); electricity 
TSOs for Hungary, Baltic Cable 
between Sweden and 
Germany, Italy (recertification).
27 Observations
Important differences in 
how Member States organise 
their energy markets can 
hold back the further 
development of the internal 
energy market
43 
The Commission has evaluated the 
progress towards the internal energy 
market and concluded that there are 
28 different national legal frameworks 
for energy markets31. The EU has there -
fore a patchwork of local, national and 
regional markets rather than a single 
internal energy market. The challenge 
for the further development of the in -
ternal energy market is finding means 
for these markets to work together. 
This is a significant challenge because:
 ο there are still several different trad -
ing mechanisms used in the EU;
 ο energy markets are influenced by 
various interventions;
 ο the development and implemen -
tation of network codes remains 
challenging; and
 ο the level of market integrity and 
transparency varies between 
markets.There are still several different 
trading mechanisms in the EU
44 
The Third Energy Package does not 
stipulate specific trading mechanisms 
that should be implemented through -
out the EU. In practice, the trade of 
gas and electricity takes place in 
a variety of ways (see paragraph 60). 
Liquidity, transparency and openness 
to participation are characteristics of 
markets which facilitate effectively the 
internal market. During the audit we 
observed at least four different trading 
mechanisms which demonstrate these 
characteristics to differing degrees, as 
set out in Table 3 .
National energy markets are 
influenced by governmental 
interventions aiming at 
achieving objectives of other 
national or EU policies
45 
Energy policy is closely linked to many 
other policy areas, on both the na -
tional and EU level, such as broader 
economic, climate change, industrial, 
innovation or labour market policies. 
Measures to implement these policies 
can have an effect on the functioning 
of energy markets, for example by in -
fluencing the choice of certain energy 
sources, or providing specific support 
for one. While these policies may be 
entirely rational at the level of a single 
Member State  — for instance, support -
ing indigenous energy sources and 
therefore possibly contributing to do -
mestic energy security perceptions in 
the Member State concerned — they 
can introduce distortions to markets 
and pricing across the internal energy 
market.31 COM (2015) 80 final of 
25 February 2015 ‘A 
Framework Strategy for 
a Resilient Energy Union with 
a Forward -Looking Climate 
Change Policy’.
28 Observations
Energy trading mechanisms identified
Liquid
Transparent
Open to 
participationExample from the audit case studies
Regional exchanges
These markets are supported by long‑term financial hedging 
mechanisms, include several countries, and aim at creating 
an area where energy can flow freely. They are usually very 
liquid, and function based on the voluntary will of the market 
participants. √ √ √The common exchange for electricity trade in the Nordic and 
Baltic region.
Direct Business‑to‑Business (B2B) Trade
These involve trade between an energy producer and its client. 
These agreements, usually long ‑term contracts, are not trans ‑
parent because the conditions of the trade will not be made 
public to other market participants. This makes it difficult to 
determine a reference price for gas and electricity in a specific 
market area.X X √At the time of the audit, 100 % of gas and electricity was 
traded in this way in Bulgaria.
There was no integrated, organised gas market in Spain until 
2014. In 2013, about 66 % of the gas was traded in LNG termi ‑
nals through bilateral contracts. The NRA faced difficulties in 
obtaining unbiased data about gas prices
Limited exchanges
These are set up by an initiative or an order of Member States’ 
governments. The obligation to trade via such an exchange 
could indicate that the price offerings are not fully based on the 
dynamics of supply and demand.√ √ XIn 2013, 50 % of electricity in Poland was sold via exchange 
while the remaining part was B2B trade. The Polish Energy 
Exchange was initiated by a group of traders, but was later 
supported by national authorities which required electricity 
producers to sell at least 70 % of their production via the 
exchange.
Markets of Excess Quantities 
These mostly exist in the gas sector. These exchanges are work ‑
ing in a situation whereby the market is mostly regulated or 
dominated by one major supplier. This results in trades which, 
although made in a transparent way, do not reflect the price 
dynamics in the market as a whole.√ X XThe Polish gas exchange provides options to purchase gas 
that is priced more than 20 % lower than the regulated 
wholesale price.
Source:  European Court of Auditors.Table 3
29 Observations
46 
The Commission is aware of the in -
fluence that these interventions can 
potentially have on the functioning of 
the energy markets. However, its abili -
ty to restrict them, even in cases where 
it wished to do so, is limited. The 
Commission has set out its position in 
the guidelines for state aid in Energy32 
and in explanatory notes concerning 
the Energy Packages. The main points 
advocated by the Commission which 
are of relevance to this audit are:
 ο regulation of wholesale prices 
should not be allowed33; and
 ο regulated retail prices should be 
set at a level that would allow the 
possibility for competing offers. 
The cost of the electricity compo -
nent in the regulated price should 
not be below the average whole -
sale price on a specific market34.
Adoption of network codes and 
guidelines: particularly slow for 
electricity
47 
Network codes are technical rules that 
seek to provide a basis for technical 
interoperability within electricity and 
gas transmission systems in the EU. 
The codes set out common technical 
standards that should ensure the free 
flow of energy across borders. They 
add further detail to the legislative 
framework of the energy markets to 
ensure common implementation of 
the packages. The network codes, 
when fully implemented, could allow 
the number of trading mechanisms to 
be reduced and provide the necessary 
conditions to ensure the integration of 
compatible markets. ACER plays a par -
ticularly prominent role in the process; 
it develops framework guidelines and 
also evaluates the codes developed by 
the ENTSOs before submitting them 
to the Commission. The Commission is 
then responsible for adopting the final text of the codes and for coordinating 
the comitology process through which 
the codes are formally adopted.
48 
Currently, the trade of energy does 
take place within and between some 
Member States even without fully 
agreed and approved network codes. 
Even so, accomplishing this process 
would be an important step in the 
development of a properly functioning 
internal energy market.
49 
As shown in Table 4 , agreeing the 
codes has proven to be a long and 
difficult process. As at 30 June 2015:
 ο for gas, some progress had been 
made, as four out of five codes had 
been approved, while one was be -
ing negotiated; and
 ο in the electricity sector, by con -
trast, none of the 11 codes have 
been approved. Even after ACER 
has submitted the file to the 
Commission, the approval of 
the network codes via comitol -
ogy procedures is experiencing 
lengthy delays. Out of the nine 
codes which have been submitted 
to the Commission, only five have 
entered the comitology process.32 Guidelines on state aid for 
environmental protection and 
energy 2014-2020; (2014/C 
200/01).
33 The criteria to be met by price 
regulation in order to comply 
with EU legislation have been 
recently confirmed by the 
Court of Justice in the 
judgment delivered on 
10 September 2015 in the 
infringement case against 
Poland concerning regulated 
gas prices for non -household 
customers (C-36/14).
34 Communication from the 
Commission on Energy prices 
and costs in Europe SWD(2014) 
19 final and SWD(2014) 20 
final.
30 Observations
The process of developing the network codes
Framework 
guidelines 
established by 
ACEREnd of code 
development 
within ENTSO‑G 
and ENTSO‑EACER final 
recommendationStart of  
comitology 
procedureCode published 
in the Official 
Journal of the 
EUGasCapacity allocation mechanisms Q3 2011 Q3 2012 Q4 2012 Q1 2013 Q4 2013
Congestion management 
proceduresN/A N/A N/A Q1 2012 Q3 2012
Gas balancing and transmission 
systemsQ 4 2011 Q1 2013 Q1 2013 Q3 2013 Q1 2014
Interoperability and data exchange 
rulesQ3 2012 Q4 2013 Q1 2014 Q3 2014 Q2 2015
Harmonised transmission tariff 
structuresQ4 2013ElectricityCapacity allocation and congestion 
management Q2 2011Q3 2012 Q1 2013 Q3 2014
Forward capacity allocation Q3 2013 Q2 2014 Q2 2015
Generation connection
Q2 2011Q2 2012 Q1 2013 Q1 2015
Demand connection Q4 2012 Q1 2013 Q2 2015
High Voltage Direct Current 
connectionQ2 2014 Q3 2014 Q2 2015
Operational security
Q 4 2011Q1 2013 Q4 2013
Operational planning and 
schedulingQ1 2013 Q4 2013
Load -frequency control and reserves Q2 2013 Q3 2013
Operational training
Requirements and operational pro -
cedures in emergencyQ1 2015 Q2 2015
Balancing Q3 2012 Q4 2013
Note:  The gas congestion management procedures did not go through the same process as other network codes. Such procedures had already 
been established as part of the Third Energy Package in Regulation (EC) No 715/2009 and subsequently updated in 2012 through comitology.
Source:  European Court of Auditors, based on information provided by ACER.Table 4
31 Observations
50 
Our audit identified four reasons why 
this process has been slow:
(a) a lack of perceived need  in mar -
kets which already function ad -
equately. The stakeholders in such 
markets are reluctant to change 
to a new set of technical rules and 
benefits for more integrated Euro -
pean markets are not prioritised. 
For example, the intraday market 
mechanism ELBAS35 of the com -
mon Nordic and Baltic electricity 
exchange is not technically in line 
with the intraday trade platforms 
in central Europe. The Nordic and 
Baltic Member States were reluc -
tant to agree to a common Euro -
pean solution which differed from 
ELBAS. The resulting debate about 
which system to use across Europe 
is delaying market coupling;
(b) in the Third Energy Package there 
is a  lack of a  clear timeframe  or 
indication of deadlines for prepar -
ing, approving or implementing 
the network codes;
(c) there is a  complicated process 
for developing the codes between 
the ENTSOs and ACER. Decisions 
on network code development are 
taken via majority voting of the 
TSOs within the ENTSOs and of the 
NRAs within ACER. This is problem -
atic because, although the ENTSOs 
are European bodies with roles for 
the development of the internal 
energy market, they also represent 
the interests of their individual 
members. This indicates potential 
conflicts of interest for partici -
pants, and could lead to the risk 
that lowest common denominator 
solutions would be agreed, which 
do not facilitate market coupling in 
an optimal way;(d) especially for the electricity, the 
Commission has not initiated 
and driven  the comitology pro -
cess in a timely manner.
51 
There has been limited early imple -
mentation of network codes. For the 
early implementation of two network 
codes, TSOs and NRAs from some 
Member States have formed regional 
initiatives; seven Member States have 
cooperated on early implementation 
of the capacity allocation mechanisms 
code for gas since 201236.
The level of integrity and 
transparency varies between 
trading mechanisms
52 
The principles of the internal energy 
market require energy to be traded on 
rules -based markets that are trans -
parent. As described above, different 
trading mechanisms have different 
degrees of transparency (see para -
graph 44). It is in this context that an 
EU regulation37 was adopted in 2011 on 
wholesale energy market integrity and 
transparency (see Box 4 ).35 For more on ELBAS, see: http://
www.nordpoolspot.com/TAS/
Intraday -market -Elbas/ .
36 Czech Republic, Spain, France, 
Hungary, Poland, Portugal and 
Romania.
37 Regulation (EU) No 1227/2011 
complemented by the REMIT 
Implementing Acts in 
mid -December 2014.
32 Observations
53 
ACER and the regulators from four out 
of the six Member States visited for the 
audit declared that they are not fully 
prepared for REMIT implementation. 
One NRA, in Bulgaria, indicated that, 
because there is currently no energy 
exchange in their country, REMIT is not 
applicable.
54 
Well -functioning exchanges have 
internal transparency mechanisms that 
are designed to prevent market manip -
ulations. These services could provide 
inputs for ACER and regulators in the 
framework of REMIT. Less transparent 
trading mechanisms, such as B2B trade 
and markets of excess quantities, have 
not yet functioning oversight mecha -
nisms. As a result, even after the REMIT 
regulation comes fully into force, risks 
of market manipulation and irregular 
information exchange may remain.Though progress in joining 
the markets in Europe has 
been made, the full price 
effects of the internal energy 
market have not yet been 
realised
55 
The Third Energy Package approach -
es the electricity and gas markets in 
a similar way. Likewise, the models that 
have been developed for the two mar -
kets are similar, insofar as they foresee 
access to energy from several sources 
and the existence of price competition 
in each market area (see paragraph 12).
56 
Wholesale prices rather than retail 
prices should be used to compare 
energy price levels between Member 
States because retail prices include 
taxes, other surcharges and discounts 
which vary between Member States. 
Average prices paid by household 
and industrial clients are significantly 
different from the wholesale prices, 
see Annex I .REMIT and ACER
REMIT , implemented by ACER, is a system of monitoring the wholesale energy markets in Europe, and is a sig -
nificant new responsibility for ACER in addition to those assigned to it in the Third Energy Package. ACER has 
required new IT infrastructure, monitoring tools and specialised expertise.
 οThe implementation phase  started with the adoption of the regulation and was completed with the 
entry into force of rules about data collection. ACER defined the methodology, procedures and IT tools for 
wholesale energy market monitoring including on data sharing with NRAs and other authorities at national 
and EU level.
 οIn the operational phase , ACER is collecting and analysing data in a four -stage approach: surveillance, 
pre-investigation of anomalous events, case investigation and enforcement. ACER collects data directly 
from market participants and third parties.Box 4
33 Observations
57 
One of the indicators for a well -func -
tioning internal energy market would 
be relatively small wholesale price 
differences of energy between neigh -
bouring countries and within regions. 
Significant wholesale price differenc -
es would indicate that the potential 
economic gains that open markets 
and interconnection capacities could 
deliver are not being realised.
58 
Wholesale and retail energy prices are 
regulated in some Member States, and 
this can have an effect on the extent 
of price differences amongst Member 
States (see paragraphs 45 and 46).59 
The electricity wholesale prices have 
not converged between Member 
States. As presented in  Figure 3 , 
wholesale electricity prices range 
widely across the EU. The highest 
wholesale price is more than 85 % 
higher than the lowest38. Substantial 
differences can be noted between 
some neighbouring Member States. 
For example, between Estonia and 
Latvia or between the Czech Republic 
and Poland.Figure 3Comparison of average wholesale baseload prices for electricity in 2014 in Member 
States with exchanges
Wholesale baseload power
euro / MWh
EL IE UK IT LT LV PL ES PT NL BE HU SI EE FI FR RO SK AT CZ DE SE DK70
60
50
40
30
20
10
058 57
53 5250 50
4443 42 41 41 41 40
383635 3534 33 33 3332 31
Note:  Price information is not available for Bulgaria, Croatia, Cyprus, Luxembourg and Malta.
Source:  European Court of Auditors, based on European Commission data.38 There was a similar range of 
wholesale electricity prices 
between the highest and 
lowest also in 2013 and first 
quarter of 2015.
34 Observations
60 
In market economic terms, in order 
for price convergence to be realised in 
practice three conditions are essential:
(a) the Member States have to be 
committed to ensuring the devel -
opment of liberalised and compet -
itive markets (see paragraph 39);
(b) the trading mechanisms used in 
Member States have to be compat -
ible across borders. If one Member 
State uses a B2B model and the 
other is part of a regional ex -
change, effective market coupling 
is impossible (see paragraph 44); 
and
(c) sufficient capacity of the transmis -
sion networks across borders, but 
also within Member States, has to 
be made available.
61 
Most Member States that utilise 
some form of exchange as a trading 
mechanism are involved in day -ahead 
market coupling39. However this has 
not led to fully converged electric -
ity wholesale prices because these 
Member States do not necessarily use 
the same trading mechanisms and the 
interconnections between and within 
Member States are limited. As evident 
from Figure 3 , price differences remain 
between these Member States.62 
Interconnectors facilitate coupling of 
national energy markets, which in the -
ory should have an effect on energy 
prices by allowing cross -border market 
effects. The EU has set an objective for 
the capacity of cross-border electricity 
interconnections to be at least 10 % of 
the installed electricity production ca -
pacity in a given Member State40 (see 
also paragraph 75). However, achieving 
a 10 % interconnection rate has not 
necessarily led to price convergence.
63 
The interconnection rate necessary 
to actually obtain price convergence 
varies due to the market needs and 
specific circumstances in the Member 
States and surrounding regions. The 
interconnection capacity to achieve 
electricity price convergence could be 
a lot more than 10 %, but in certain 
situations, especially between large 
markets, the necessary interconnec -
tion capacity could be lower. For 
example, according to Table 5 , Por -
tugal’s interconnection rate is below 
10 % but, as seen on Figure 3 , there 
is no significant price difference with 
neighbouring Spain. Further exam -
ples of the relationship between price 
convergence and this interconnection 
target are given in Box 5 .39 The exceptions are Greece, 
Ireland and Poland.
40 The 10 % interconnection 
target was developed at the 
2002 European Council in 
Barcelona. It calls for all 
Member States to develop 
interconnection capacities 
that are at least 10 % of their 
installed electricity production 
capacity by 2020. This means 
that each Member State 
should have in place electricity 
cables that allow at least 10 % 
of the electricity that is 
produced by their power 
plants to be transported 
across its borders to its 
neighbouring countries.
35 Observations
64 
Some Member States, although com -
mitted to implement internal energy 
market-related reforms, still do not al -
low energy prices to be determined by 
the dynamics of supply and demand. 
Wholesale energy price regulation was 
used in one of the Member States cov -
ered in our audit, and different forms 
of retail price regulations were used 
in four Member States in the audit 
sample.The full implementation of the 
gas target model may have only 
a limited effect on the average 
wholesale prices of gas
65 
The gas target model stipulates the 
need for hub-based trade (see para -
graph 12). So far, only seven Member 
States currently have hub -pricing41. In 
other Member States, gas trading takes 
place using B2B trading models with 
exclusive contracts for the use of pipe -
line capacities, in which gas producers 
commit themselves to delivering spe -
cific amounts of gas for a fixed price. 
This fixed price is then the basis for the 
wholesale price in a country.Electricity price convergence and the 10 % electricity interconnection target
Estonia and Latvia  have current interconnection capacity which stands at approximately 60 % of Estonian 
production capacity and 33 % of Latvian capacity. Therefore the interconnection rate is well above the 10 % 
target, but price differences remain significant.
Poland  has sufficient interconnection capacities with its neighbouring countries. When excluding the inter -
connections to non -EU Member States — Belarus and Ukraine — the interconnection capacity is at 15 % of 
the available generation capacity. Nevertheless, the existing cross-border lines, with a total capacity of 5 GW, 
are largely not available for commercial trade due to restrictions set by the Polish TSO for coping with un -
planned energy inflows from Germany.
These unplanned inflows are due to large productions capacities of wind-powered electricity in northern 
Germany and limited transmission capacity within Germany. As the electricity cannot be transmitted within 
Germany, it can flow into the networks of the neighbouring countries creating so called ‘loop flows.’ To cope 
with these potential flows, the Polish TSO closes all but a very small capacity of the interconnection with Ger -
many for trade of electricity.
The only fully operational interconnection that has an impact on the electricity price in Poland is the SwePol  
link to Sweden (600 MW), which represents approximately 1.6 % of total national available electricity produc -
tion capacity in Poland (see Box 7 ).Box 5
41 Hub -to-hub cross-border gas 
trading is currently possible 
between Belgium, Germany, 
France, Italy, Netherlands, 
Austria and United Kingdom.
36 Observations
66 
Both hub -based and B2B trading 
mechanisms for gas can be found 
working in parallel within a Member 
State. For example, in Italy there is 
a gas hub and its gas suppliers have 
committed to four separate B2B con -
tracts. On the other hand, Estonia and 
Latvia each have a single source of gas 
with B2B contracts that determine the 
price42.
67 
Hubs depend on there being more 
than one source of gas supply, de -
livered either via pipeline intercon -
nectors or from other sources, such 
as LNG. Developing competitive 
hub -based trading all over the EU 
would require significant investments 
in infrastructure in order to facilitate 
deliveries of gas from alternative 
sources. If such significant investment 
costs were expected to be recovered 
in network tariff increases over time, 
the economic case for seeking to 
develop hub -based trading all over 
the EU may be limited, especially given 
that average hub-based prices are only 
10 % lower than average B2B prices43.
68 
Furthermore, competitive hub -based 
trading requires sufficient supply from 
different sources of gas. However, 
whilst having several gas suppliers 
from the same national source may 
create competition of margins, it 
would not necessarily ensure security 
of supply benefits, because disrup -
tion from that single, national source 
could have an impact on all the supply 
routes therefrom.42 Some countries implement 
certain hybrid systems. For 
example, Poland has regulated 
wholesale and retail prices for 
gas, but part of the imports 
and certain unused capacities 
are then sold on an exchange. 
In the fourth quarter of 2014 
the price of gas on an 
exchange was 26.2 euro per 
MW/h while the regulated 
price was 36 euro per MW/h. In 
2013, only 3 % of the total gas 
trade took place via the 
exchange.
43 Based on information 
provided by ACER, the average 
hub price in 2014 across the 
seven Member States where 
there were hubs was 24.8 euro 
per MW/h while the average 
import price on B2B contracts 
in 2014 was 27.0 euro (see 
Annex II ). The price range 
between the highest and the 
lowest B2B contract varied 
between 22.1 and 32.0 euro 
per MW/h and between 
23.4 and 27.8 euro per MW/h 
for the hubs. The average B2B 
price calculation takes into 
account the 21 % retroactive 
discount obtained by 
Lithuania as described in 
Box 6 .
37 Observations
69 
All of this also needs to be considered 
in the context of significant uncertain -
ty about future gas demand in the EU. 
Between 2010 and 2013, as shown in 
Figure 4 , aggregate gas demand in the 
EU fell by 14 %, and even the Com -
mission’s own forecasts suggest that 
gas demand is unlikely to increase. 
This makes potential investors wary of 
future investment commitments.70 
The Commission does not have its own 
in-house functioning capability for 
generating projections of gas demand 
in the EU; rather it uses forecasts pro -
vided by an external contractor (see 
paragraph 83). Figure 4  also shows 
that the Commission has persistently 
overestimated gas demand during the 
period, and needs to restore the credi -
bility of the forecasts it uses.Figure 4Gas consumption in EU-27  2000-2013 shown alongside the Commission forecasts  
up to 2030
Gross Inland Consumption
Million Tonnes of Oil Equivalent
2011 Forecast2005 Forecast
2009 Forecast2003 Forecast
2013 Forecast2007 ForecastActual consumption
2030 2028 2026 2024 2022 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000600
500
400
300
Note:  All forecasts are for EU-27 consumption at 5-year intervals (2005, 2010, 2015, etc.). The latest figures available from Eurostat for actual gas 
consumption are for 2013.
Source:  European Court of Auditors, based on Eurostat and European Commission biannual energy forecasts published between 2003 and 2013.
38 Observations
71 
There are alternative ways to introduce 
competition to the gas markets which, 
while being short of fully function -
al, competitive, hub -based pricing, 
would bring greater security of energy 
supply. This could be done by provid -
ing an alternative source which would 
influence the price offered by the 
other gas provider. The LNG terminal 
in Lithuania is an example of how 
such a price effect could be achieved, 
while also ensuring that an alternative 
supply is available in case of disruption 
affecting gas pipelines in the Baltic 
region. See  Box 6 .
‘Independence’: the LNG terminal in Klaipeda, Lithuania
The floating LNG terminal ‘Independence’ was installed in the Port of Klaipeda in November 2014. It is 
a Norwegian-owned terminal vessel leased by Lithuania for a period of 10 years with a subsequent right for 
purchase by Lithuania. The terminal, capable of supplying 3.8 billion m3 of gas per year, has significantly in -
creased the security of Lithuania’s gas supply and the competition between gas suppliers in the whole region.
According to the Lithuanian NRA, after the completion of the main works for the LNG terminal in 2014, a gas 
import price reduction of 21 %, to about 28.6 euro per MW/h, was provided by the other gas provider to Lithu -
ania, even before the LNG terminal was fully operational.Box 6
Photo 1 — Arrival of the floating LNG terminal ‘Independence’ to the 
port of Klaipeda
© Hoëgh LNG
39 Observations
Energy infrastructure in 
Europe is generally not 
yet designed for fully 
integrated markets and 
therefore does not 
currently provide 
effective security of 
energy supply
72 
Suitable infrastructure is as necessary 
for the functioning of the internal en -
ergy market as market structures and 
effective regulation. This section of the 
report:
(a) evaluates whether energy infra -
structure in the EU is currently 
designed for the development of 
the internal energy market;
(b) assesses whether infrastructure is 
being developed based on a com -
prehensive assessment of needs; 
and
(c) considers the cooperation needed 
to realise infrastructure projects.The infrastructure within 
and between many Member 
States is not yet suited for 
the internal energy market
The energy infrastructure 
within one Member State can 
influence the energy markets in 
other Member States
73 
The characteristics of energy infra -
structure in Member States can, in 
practice, give rise to constraints on the 
flow of electricity and gas between 
neighbouring and other Member 
States. We observed such situations 
during the audit in the following ways:
(a) insufficient absorption capacity . 
This problem can emerge when 
the infrastructure within a Mem -
ber State has insufficient capacity 
to allow for import and export 
between neighbouring national 
markets. This occurs when the 
national transmission networks are 
overloaded, or where electricity 
networks lack sufficient frequency, 
or gas systems lack free capacity 
and/or pressure. See examples in 
Box 7 ;
Examples of insufficient absorption capacity of national transmission 
infrastructure
The SwePol interconnector between Poland and Sweden , with 600 MW installed capacity, commissioned 
in 2000, is not being used to full capacity despite there being significant differences in electricity wholesale 
prices between the markets in the two Member States. According to the Polish TSO, the electricity transmis -
sion infrastructure in northern Poland does not have sufficient capacity to receive this amount of electric -
ity into Poland and distribute it within the national network. During 2014 the capacity offered to the mar -
ket ranged between 273 MW and 424 MW, which is considerably lower than the maximum capacity of the 
interconnector.
Estonia  has gas interconnectors to third countries and to Latvia, and the pressure in its system is ensured by 
pumping stations in Latvia. A new underwater gas pipeline is planned between Estonia and Finland. For gas 
to flow in this pipeline, the gas pressure in the Estonian system would have to be increased, either by con -
structing a pumping station in Estonia or by upgrading the Latvian pumping station.Box 7
40 Observations
(b) insufficient capacity to allow 
energy transit . Some Member 
States have become, or are ex -
pected to become, so -called cor -
ridors for energy transit. These are 
situated between Member States 
that are energy rich and could 
export competitively priced gas 
or electricity and Member States 
that would benefit from this flow. 
Energy transit across a Member 
State requires capacity that is not 
fully used by domestic demand. 
Some transit countries do not have 
such capacity and this can lead to 
congestion, see examples in Box 8 . The opposite problem can occur 
when gas pipelines are reserved by 
long -term contracts for transit and 
are not available for domestic use 
(see paragraph 111).
Challenges with energy transit
Sweden  is a transit country for Norwegian electricity flowing to Finland, Denmark, Germany and Poland. It 
has invested in interconnections that facilitate this flow. However, internal congestion in Sweden did not allow 
stable export to Denmark. Therefore, in 2011, following a claim from Denmark to the European Commission, 
Sweden rearranged its electricity market into four trading zones. This helped to identify congestion areas, 
which then led to network reinforcement.
France  would have to act as a transit country for gas to flow between the Iberian Peninsula and the rest of  
Europe. However, this would not currently be possible because of prevailing market conditions, network con -
gestion in southern France, and problems related to gas flows between the North and South of France.
Also in the electricity sector, besides the limited availability of physical connections between Spain and 
France, another important obstacle to the integration of Spain and Portugal to the internal energy market is 
the need to strengthen the internal electricity grid systems in both Spain and France, as it will not otherwise 
be possible to transmit electricity between Iberian Peninsula and central Europe.Box 8
41 Observations
Gaps remain in the cross-
border infrastructure between 
Member States
74 
Problems with the capacity of cross -
border interconnectors become 
evident as the demand for energy 
trade between Member States increas -
es. There is no single comprehensive 
analysis of the state of cross -border 
infrastructure gaps in the EU (see 
paragraph 82). Even though there is 
no such strategic needs assessment, 
targets for electricity and gas intercon -
nection have been set at EU level.75 
The  10 % electricity interconnection 
target44 was established by the Euro -
pean Council in 200245. However, there 
remain Member States that have little 
or no electricity interconnections with 
their neighbours, and, as of June 2015, 
there are 12 Member States below 
the 10 % interconnection target, see 
Table 5 . As pointed out in paragraph 
62, meeting the 10 % interconnection 
target does not necessarily mean that 
price convergence is achieved in the 
electricity markets of neighbouring 
Member States.Table 5EU Member States’ electricity interconnection ratios in 2014
Above 10  % electricity interconnection ratio Below 10  % electricity interconnection ratio
Member State % Member State %
Luxembourg 245 Ireland 9
Croatia 69 Italy 7
Slovenia 65 Portugal 7
Slovakia 61 Romania 7
Denmark 44 United Kingdom 6
Finland 30 Estonia 4
Hungary 29 Latvia 4
Austria 29 Lithuania 4
Sweden 26 Spain 3
Netherlands 17 Poland 2
Belgium 17 Cyprus 0
Czech Republic 17 Malta 0
Bulgaria 11
Greece 11
Germany 10
France 10
Note:  the three Baltic countries are considered as a region, although individually they fulfil the 10 % target.
Source:  Communication from the Commission to the European Parliament and the Council on achieving the 10 % electricity interconnection target.44 The interconnection ratio is 
calculated by comparing the 
installed electricity production 
capacity to the total capacity 
of the electricity 
interconnections of a Member 
State. There are differing 
interpretations as to whether 
electricity production should 
be calculated according to 
installed capacity or actually 
used capacity.
45 Presidency Conclusions: 
Barcelona European Council 
15 and 16 March 2002 SN 
100/1/02 REV 1.
42 Observations
76 
Some Member States, such as Cyprus, 
are genuine electricity energy islands, 
from which developing interconnec -
tions is very complicated. Some Mem -
ber States have a low interconnection 
ratio because they restrict the devel -
opment or use of interconnectors, see 
Box 5 .
77 
The N-1 rule for gas46, introduced in 
2010 by the Security of Gas Supply reg -
ulation, seeks to ensure that there are 
alternative providers of gas available in 
every market. This rule was supposed 
to have been complied with by De -
cember 2014. Whether or not a Mem -
ber State is deemed to have complied 
with the rule was based on a calcula -
tion comparing the significance of the 
largest gas entry point with the signif -
icance of all the other entry points to 
that Member State combined. It is pos -
sible to fulfil the N-1 rule on a regional 
level if relevant Member States estab -
lish a Joint Risk Assessment and a Joint 
Preventive Action and Emergency Plan. 
According to the Commission, based 
on data provided to it by the Member 
States, by December 2014, six of the 26 
Member States with gas entry points in 
the EU did not fulfil the N-1 rule47.
78 
In order to meet the N-1 rule, reverse 
flow capability has been installed to 
some existing gas pipelines. Out of six 
Member States included in the audit, 
four48 have equipped one or more 
gas interconnectors with reverse flow 
capability, so that gas can flow in both 
directions. However, these reverse flow 
capabilities have had almost no impact 
on the functioning of the gas markets 
because they are intended primarily 
for use during supply disruption.79 
Similarly to the 10 % target for elec -
tricity, the N-1 rule is of limited use for 
analysing gas infrastructure needs, 
because where the alternative entry 
point provides the gas from the same 
national source as the largest entry 
point it does not necessarily increase 
competition and has little effect on 
security of energy supply. For exam -
ple, Finland and Latvia, although each 
having more than one entry point, re -
main in reality dependent on a single 
gas provider, because all gas entering 
these points comes from the same 
national source.
80 
Due to the fact that constructing gas 
infrastructure often involves signifi -
cant investment, there is not always 
a strong economic case for construct -
ing pipeline interconnections with 
several suppliers (see also paragraphs 
67 and 69). Against this background, 
some Member States are considering 
the comparative merits of alternative 
approaches to developing their gas 
markets, such as installing LNG termi -
nals. LNG terminal projects are either 
planned or being finalised by, among 
others, Lithuania (see Box 6 ), Poland, 
Estonia, Finland, Sweden, and Croatia.
81 
Nevertheless, some Member States 
are continuing to consider ambitious 
developments in their gas systems, 
including constructing new gas 
infrastructure with a view to creating 
gas hubs. For example, despite falling 
domestic gas consumptions49, Bulgaria 
and Poland are each preparing for the 
creation of gas hubs.46 The N-1 criterion was 
introduced by Regulation (EU) 
No 994/2010 on the security of 
gas supply in October 2010. 
This rule — based on the 
example from the electricity 
sector — obliges those 
Member States who are 
dependent on a single import 
pipeline, underground storage 
facility or other type of 
essential infrastructure, to 
make sure that demand on 
extremely cold days can be 
covered even if the main 
import infrastructure fails.
47 SWD (2014) 325 final of 
16 October 2014,‘Commission 
Staff Working Document. 
Report on the implementation 
of Regulation (EU) 994/2010 
and its contribution to 
solidarity and preparedness 
for gas disruptions in the EU’. 
The six Member States were: 
Sweden, Lithuania, Bulgaria, 
Greece, Slovenia and 
Luxembourg. Three of these, 
Luxembourg, Slovenia and 
Sweden, have been provided 
with an exemption in 
accordance with Article 6(10) 
of the Regulation.
48 With the exception of Estonia 
and Sweden.
49 According to the Bulgarian 
Statistics Office, the gas 
consumption decreased from 
3 218 billion cubic metres 
(bcm) in 2011 to 2840 bcm in 
2014.
43 Observations
There is no overall EU-level 
needs assessment to provide 
the basis for prioritising 
investments in energy 
infrastructure in the EU
A comprehensive assessment of 
EU level infrastructure needs is 
not in place
82 
A comprehensive assessment of EU- 
level infrastructure needs is neces -
sary to inform the decisions about 
development of the internal energy 
market and security of energy supply 
and other EU policy commitments 
for which the energy sector plays an 
important role, especially those re -
lating to climate action. Furthermore, 
with significant energy infrastructure 
investments needs across the EU, such 
an assessment is also a crucial tool to 
inform decisions about targeting the 
limited EU and other available funds. 
The Commission has not developed 
such a comprehensive plan that could 
combine the EU-level policy inputs 
into a long -term transmission infra -
structure development plan.
83 
An indispensable input to inform such 
a comprehensive assessment would be 
a sophisticated market development 
model capable of describing predic -
tions for infrastructure needs under 
various policy and market scenarios, 
including a robust range of demand 
scenarios (see paragraph 70). At pres -
ent, the Commission does not have 
a modelling tool in -house, nor does it 
have access to such a tool in ACER. To 
date, the Commission has used energy 
market modelling from an external 
contractor, while ACER relies on ENT -
SO-E and ENTSO -G modelling.84 
Not having such a needs assessment 
as a basis for targeting EU funds could 
lead to projects being financed across 
the EU that are not necessary to meet 
anticipated energy demand, or which 
have limited potential to provide 
security of energy supply benefits. 
For example, although the capacity of 
the Klaipeda LNG terminal (see Box 6)  
is sufficient to cover falling gas de -
mand of the three Baltic countries50, 
an additional regional LNG terminal 
in the region around the east coast of 
the Baltic sea, to be built in Finland 
or Estonia, is included in the BEMIP 
plan51 (see Box 9)  and is amongst the 
list of projects of common interest (see 
Box 12 ).
The planning tools used to 
inform investment planning 
have limitations
85 
In the absence of a comprehensive 
assessment, the Commission has relied 
on a number of more specific infra -
structure planning tools including:
 ο lists of projects of common inter -
est (PCIs) (see analysis in para -
graph 103);
 ο ten-year network development 
plans (TYNDPs).50 According to the Eurostat 
statistics, the total natural gas 
demand of Estonia, Latvia and 
Lithuania has decreased from 
5.6 bcm a year in 2010 to 
4.6 bcm in 2014.
51 Agreement reached in 
November 2014 between the 
prime ministers of Finland and 
Estonia foresees construction 
of a larger regional LNG 
terminal to Finland and 
a smaller one for local use in 
Estonia. If the Finnish project 
does not progress according 
to the schedule, Estonia 
retains an option to construct 
the regional terminal.
44 Observations
86 
Although they provide overviews on 
investments planned by national elec -
tricity and gas TSOs, TYNDPs do not 
present the complete picture of invest -
ments, in terms of EU-level policy and 
market development needs, because:
 ο they are not based on an overall 
EU assessment taking into account 
a range of EU policy objectives;
 ο they do not take due account of 
the future infrastructure invest -
ments planned by private entities 
and future energy generation;
 ο the national regulators do not play 
a strong role in the evaluation of 
proposals to the TYNDP;
 ο they are not always coherent 
with national energy infrastruc -
ture investment plans. ACER has 
identified 51 national projects in 
ENTSO -E TYNDP 2012 which were 
not included in national develop -
ment plans52.
87 
The Commission recognises that 
the Member States’ notifications to 
the Commission about existing and 
planned electricity transmission 
capacity are often not in line with the 
TYNDPs. Thus, the Commission is not 
in a position to draw definitive conclu -
sions and make an adequate assess -
ment of future gaps between energy 
infrastructure and its potential to meet 
demand53. ACER, which monitors their 
implementation, has also expressed 
concerns on a range of practical mat -
ters concerning TYNDPs54.Developing cross-border 
infrastructure requires 
cooperation amongst 
neighbouring Member States
88 
A functioning regional cooperation 
and mutual perception of develop -
ment needs are necessary precondi -
tions for any cross-border infrastruc -
ture project to happen. However, in 
practice, cross-border project initia -
tives can face a range of challenges, in -
cluding lack of perceived need for the 
projects on one or both sides, difficul -
ties in obtaining all planning permits, 
as well as equitably financing energy 
infrastructure projects and allocating 
the often high costs between parties. 
Nevertheless, there are some examples 
of effective cooperation in the EU that 
have laid the ground for the develop -
ment of common infrastructure and 
market development.
Regional cooperation in the 
energy sector is emerging
89 
In the field of energy, regional cooper -
ation involving two or more Member 
States is the result of either political or 
technical initiatives.52 ACER Opinion 8/2014.
53 Commission Staff Working 
Document ‘Investment 
Projects in Energy 
Infrastructure’ accompanying 
the document 
Communication from the 
Commission to the European 
Parliament, the Council, the 
European Economic and Social 
Committee and the 
Committee of the Regions: 
‘Progress towards completing 
the Internal Energy Market’ 
(SWD(2014) 313 final of 
13.10.2014, p. 4).
54 In its Opinion No 16/2014, 
ACER expressed concerns 
about the TYNDPs, especially 
regarding the limited 
availability of data, 
presentation of grid transfer 
capacities, use of Cost -Benefit 
Analysis for all transmission 
investments and lack of 
sufficient clarity on some 
investment descriptions.
45 Observations
90 
Amongst  political initiatives , a no -
table current example is the Baltic 
Energy Market Interconnection Plan 
(BEMIP), see Box 9 . Another regional 
initiative is emerging in the form of 
a South-Eastern and Central European 
Energy forum. There have also been 
joint political commitments for infra -
structure development such as the 
Madrid Declaration55, regional coop -
eration initiatives, such as CORESO56, 
and security of energy supply groups 
such as the Baltic and Finnish Gas 
Coordination Group. These groupings, 
often initiated with involvement of 
the Commission, are often formalised 
through agreements at a high political 
level between Member States. They 
sometimes extend to specific project 
agreements, for example the recently 
opened Spain–France electricity link 
(see Box 10  and paragraph 93).91 
Technical cooperation initiatives  are 
mostly those launched in the frame -
work of CEER57 and ACER, such as the 
groups considering the development 
of network codes (see also Annex III ). 
These groupings can also lead to the 
creation of new forms of regional 
cooperation, such as regional security 
coordination initiatives58.
What is the Baltic Energy Market Interconnection Plan (BEMIP)?
The Baltic Energy Market Interconnection Plan (BEMIP)  was endorsed by the Heads of State of Lithuania, 
Poland, Latvia, Denmark, Estonia, Sweden, Finland and Germany and the President of the European Commis -
sion on 17 June 2009.
The objective of the BEMIP plan is the integration of Estonia, Latvia and Lithuania to the European Energy 
markets, to end their status as energy islands and to liberalise their energy markets to prepare them for join -
ing the common electricity exchange. The plan also includes a number of infrastructure projects, ranging 
from Danish North Sea wind parks to gas Network development in Estonia. The EstLink2 electricity intercon -
nector between Estonia and Finland, which was included in BEMIP , has been built with EU financial support 
and has already had an impact on the electricity market in Estonia (see Box 13 ).
BEMIP is still in the process of being implemented. For example, retail prices of gas and electricity are still 
regulated in Lithuania and certain infrastructure projects have not been realised, such as the Regional Baltic 
LNG terminal that is foreseen to be constructed in Finland or Estonia.Box 955 A joint declaration signed on 
4 March 2015 by the European 
Commission President 
Jean -Claude Juncker, President 
of France François Hollande, 
the Prime Minister of Spain 
Mariano Rajoy and the Prime 
Minister of Portugal Pedro 
Passos Coelho to agree on 
ways to strengthen the 
connections between the 
Iberian Peninsula and the rest 
of the EU energy market.
56 Coreso (Coordination of 
Electricity System Operators), 
the first regional technical 
coordination centre for 
electricity bringing together 
several TSOs from France, 
Belgium, Germany, Italy and 
United Kingdom.
57 CEER — Council of European 
Energy Regulators: a Brussels- 
based NGO that seeks to 
present the interest of NRAs in 
the process of developing the 
internal energy market.
58 Participation of Member 
States’ organisations in the 
regional cooperation initiatives 
varies greatly. For example the 
Swedish NRA participated in 
all ACER working groups and 
early adoption initiatives. Also, 
the Swedish electricity TSO is 
involved in a variety of the 
regional cooperation initiatives 
and participates in the early 
implementation groups of the 
Network Codes. By contrast, at 
the time of the audit, the two 
TSOs of Bulgaria did not 
participate in any regional 
cooperation or early 
implementation groups.
46 Observations
92 
The Commission is promoting infra -
structure cooperation between Mem -
ber States, and is seeking to spread 
what it considers as good practice 
under BEMIP to other regions such as 
in central and south -eastern Europe 
and with the Iberian Peninsula. In the 
latter case, energy sector cooperation 
between France, Portugal and Spain 
has recently been declared and agreed 
at the highest political level.
93 
In the period 2007–2013, the Com -
mission also designated four coordi -
nators with the aim of facilitating the 
agreements between Member States 
for constructing specific elements of 
cross-border infrastructure59. The work 
of the coordinator to enhance energy 
interconnection between France and 
Spain involved interacting with both 
national and local politicians and 
stakeholders and identifying the need 
for technical solutions. This contribut -
ed to defining an electricity intercon -
nector project that was subsequently 
constructed with support from EU 
funds60 (see Box 10 ).Cross-border cost allocation is 
complex
94 
Cross -border energy projects involve 
infrastructure being constructed in at 
least two Member States. Allocating 
the costs of constructing such projects 
is a complex process, with the Member 
States involved seeking to make sure 
that the costs they incur are commen -
surate with the future benefits that are 
expected to accrue. Complexities arise 
in particular for projects where there 
are more than two Member States 
involved and/or where it is not obvious 
how and to whom future benefits are 
expected to accrue.59 The other projects for which 
the coordinators were 
appointed were: ‘Poland– 
Lithuania link’, ‘Nabucco’ and 
‘Connection of offshore wind 
power in Denmark, Germany 
and Poland’.
60 Rapport du Coordonnateur 
Europeen, Mario Monti, Projet 
d’Interet Europeen EI 3, 
‘Interconnexion électrique 
France–Espagne’, Bruxelles, 
Septembre 2008.
47 Observations
The Spain–France electricity interconnection project
The  France–Spain electricity interconnection  project involved the construction of a 2 000 MW high voltage 
direct current connection between the two countries. The 64.5 km interconnector includes 33.5 km in France, 
31 km in Spain and crosses the Pyrenees via a 8.5 km tunnel.
The need for this interconnection was identified in 1978 and technical studies were done between 
1998 and 2006. Facilitated by the European coordinator in 2007 and 2008, the decision about the project de -
sign was taken in June 2008 when the French and the Spanish governments signed an agreement. The costs 
of the project were shared equally between France and Spain, with a contribution made by the EU. Construc -
tion commenced in September 2011, and technical delivery was completed in December 2014. The intercon -
nector was due to come into service in June 2015, but as of 30 June 2015, had not yet done so.
The total project cost was 721 million euro, of which 225 million euro was provided from the EEPR. Running 
the interconnector underground through the Pyrenees increased cost by 10 times more than the estimated 
cost of an overground cable. This was deemed necessary due largely to specific environmental considerations 
and was defined as an exceptional solution to an exceptional set of problems at the location. The link has 
doubled the Spanish electricity interconnection ratio from 3 % to 6 % and increased the French interconnec -
tion rate from 10 % to 11 %.Box 10
Photo 2 — Section of high voltage direct current interconnector cable being 
installed in the tunnel under the Pyrenees
© RTE, Philippe Grollier
48 Observations
95 
Cross -border cost allocation is relevant 
in the framework of allocations of EU 
funds under the Connecting Europe 
Facility. The TEN -E regulation requires 
that decisions about the cross -border 
cost allocations be taken by the NRAs 
of the concerned Member States. If 
project promoters from the Member 
States wish to apply for CEF funding 
but the NRAs cannot agree within 
6 months, then they can refer the case 
to ACER in order to obtain a decision 
to settle the matter (see example in 
B ox 11 ). This process has the following 
drawbacks:
(a) seeking agreement between NRAs 
and then obtaining a decision from 
ACER is time -consuming, taking up 
to a year;
(b) some parties are critical of the 
methodology used.Obtaining permits can be 
problematic and lead to delays
96 
Cross -border projects often face local 
opposition as such projects can be 
perceived as causing disruption to lo -
cal activities whilst bringing little or no 
local benefits. In such a context, ob -
taining local planning permits is often 
a long and complex process, and was 
highlighted during the audit by TSOs 
and regulators as an important reason 
for delays in implementing infrastruc -
ture projects. The Commission reports 
that the resulting delays prevent about 
50 % of commercially viable electricity 
projects from being realised by 202061.
Allocating costs for the LitPol cross border interconnector project
The Litpol project  involves the construction of an electricity interconnector between Poland and Lithuania 
in order to reduce the isolation of the three Baltic countries from the European Union energy market. For the 
works on the project in the territory of Lithuania, the Lithuanian NRA claimed that Sweden should contrib -
ute 47 million euro because of the benefits that it claimed would accrue to Sweden as a result of the project. 
Neither the Swedish NRA nor TSO agree with the Lithuanian NRA’s claim for contribution, setting out their 
reasons to ACER when ACER was called upon to decide on the matter. ACER agreed with Sweden, ruling, for 
the purposes of CEF funding, that Lithuania was the only benefiting country of the project and that Sweden 
should not have to contribute to the project. This decision subsequently allowed Lithuanian TSO to apply for 
CEF funding (see Table 6 ). The decision process took almost 1 year to complete.Box 1161 2020 COM (2010) 677.
49 Observations
97 
The 2013 TEN -E regulation sought to 
address these problems by:
(a) introducing an overall time 
limit of 3.5 years for permitting 
procedures;
(b) requiring Member States to 
streamline their environmental 
authorisation procedures;
(c) requiring Member States to con -
solidate permit-granting powers 
or coordination into one single 
authority, a one -stop -shop, by 
November 2013. As at June 2015, 
all Member States have established 
one -stop -shops and all but one 
have published manuals on permit 
granting62. The one -stop -shops are 
still recent initiatives, however, and 
it is too soon to assess whether 
they are proving effective.
98 
The European coordinator who worked 
on the France–Spain interconnector 
(see Box 10)  observed that opposi -
tion to infrastructure projects from 
local communities is best addressed 
through direct, local communication 
that points out the benefits of ad -
ditional interconnections especially 
for consumers. In general, increasing 
consumer knowledge about the way 
energy markets work, could also lead 
to intelligent consumption behaviours, 
and greater acceptability of such inter -
connection projects.Financial support from 
the EU budget in the field 
of energy infrastructure 
has made only a limited 
contribution to the 
internal energy market 
and security of energy 
supply
99 
The EU has allocated 3.7 billion euro 
to energy infrastructure investments 
through several instruments in the 
2007-2013 period, and a further 
7.35 billion is envisaged for the 2014-
2020 period63. Although this is a signif -
icant amount of funding, it only covers 
approximately 5 % of the estimated 
infrastructure investment needs iden -
tified in the TYNDPs for electricity and 
gas. So the available EU funds need to 
be used strategically, for the most im -
portant projects, based on a strategic 
needs assessment (see paragraph 83).62 According to information 
provided by the Member 
States to the European 
Commission.
63 This figure excludes any 
potential future support to 
energy infrastructure from the 
European Fund for Strategic 
Investments, which envisages 
16 billion euro guarantees 
from the EU budget.
50 Observations
The EU has several funding 
instruments to support 
energy infrastructure 
projects, but none have the 
internal energy market as 
a primary objective
Insufficient prioritisation 
of projects has reduced the 
effectiveness of EU funding for 
energy infrastructure
100  
Since EU resources for financing ener -
gy infrastructure are limited, having 
some means of prioritising projects is 
important. Although there is no EU- 
level needs assessment, the Commis -
sion has used several lists of specific 
projects as a way to seek to prioritise 
investments from the EU budget and 
to identify projects that are eligible for 
financing:
 ο list of PCIs under the TEN -E 
regulations;
 ο list of critical projects of common 
interest, presented in the 2014 
Energy Security Strategy; ο list of projects applicable for sup -
port from the European Energy 
Programme for Recovery (EEPR);
 ο List of projects applicable for sup -
port from the European Fund for 
Strategic Investments.
101  
The list of PCIs under the TEN -E regula -
tion has been developed in two stages:
(a) the original PCI list was developed 
in 2006. It included 550 projects 
of European interest in all of the 
Member States at the time, but no 
clear guidance on which projects 
should be prioritised for EU fund -
ing (see Box 12);
How can an energy infrastructure project obtain PCI status?
The concept of PCIs has existed since the start of the trans -European Networks programme. PCIs should 
be able to benefit from faster and more efficient permit -granting procedures and improved regulatory 
treatment.
Under the current TEN -E regulation, PCIs are identified within ‘priority corridors’. The process of selecting 
projects to be included in the PCI list is built upon the TYNDPs developed by ENTSOG and ENTSO -E. To be 
included on the list, a project has to present significant benefits for at least two Member States, contribute to 
market integration and further competition, enhance security of supply, and reduce CO2 emissions.Box 12
51 Observations
(b) the 2013 TEN -E regulation64 es-
tablished a framework for prior -
itisation of energy infrastructure 
investments through the identi -
fication of 12 priority corridors65. 
The regulation also provided guid -
ance concerning the identification 
and implementation of PCIs. The 
PCI list under this regulation in -
cluded 248 projects, of which 132 
were for electricity infrastructure 
and 107 for gas infrastructure66. 
The PCI list under this regulation 
contains fewer projects than the 
2006 PCI list. However, accord -
ing to Article 4(4) of the TEN -E 
regulation, the Commission is not 
entitled to rank the projects within 
each priority corridor;
(c) the list of PCIs is updated every 
2 years, and the next update is due 
in November 2015.
102  
In 2014, a subsequent list of 33 projects 
was developed in the European Energy 
Security Strategy67 which referred to 
these projects as ‘critical PCIs’. This 
included some 27 projects in gas and 
only six in electricity, with an estimat -
ed cost of around 17 billion euro. The 
Commission considered these projects 
to be essential for improving security 
of supply and to connect better ener -
gy markets in the short and medium 
terms.103  
All of these lists have been developed 
without a clear, underlying, analytical 
assessment of which projects should 
be prioritised to enable the EU to 
achieve its energy policy objectives 
(see paragraph 82). Using such lists as 
a basis for making decisions about EU 
financing entails a range of risks, and 
if the Commission intends to continue 
to use such lists as a means to define 
investment priorities, it should bear 
such risks in mind:
(a) A list may include so many projects 
that the concept of the list repre -
senting priority projects is severely 
undermined, as the list there -
fore does not focus on the small 
number of projects addressing the 
most pressing EU needs. The initial 
TEN -E PCI included 550 projects, 
and after being rationalised in 
2006, still included 248 projects;
(b) Because they are compiled based 
on proposals from Member States, 
rather than being a list of projects 
that address demonstrably EU-lev -
el needs, a list may, in practice, be 
only an amalgamation of projects 
which project promoters from 
Member States would like funding 
for domestic reasons, and;
(c) Some projects on such lists may 
already be in progress, or already 
completed using finance from 
other national or private sources68.64 Regulation (EU) No 347/2013.
65 Energy infrastructure: 
Priorities for 2020 and beyond, 
2011, page 14. Electricity: 
Northern Seas offshore grid, 
North–South interconnections 
in western Europe, North–
South interconnections in 
central eastern and south- 
eastern Europe, Baltic Energy 
Market Interconnection Plan, 
Smart grids deployment, 
long -term electricity highways 
Gas: North–South gas 
interconnections in western 
Europe, North–South gas 
interconnections in central 
eastern and south-eastern 
Europe, Southern Gas 
Corridor, Baltic Energy Market 
Interconnection Plan.
66 The remaining nine consisted 
of seven oil projects and two 
smart grid projects.
67 COM(2014) 330 final, p. 10.
68 In October 2014 the 400 kV 
power line between Bescanó 
and Santa Llogaia in Spain was 
completed, which was a step 
further towards the new 
electricity interconnection 
between France and Spain. 
This project is still included in 
the list of the PCIs and EFSI.
52 Observations
EEPR, CEF and ESIF are not 
designed primarily to enhance 
the internal energy market
104  
The initial objective of the EEPR 
programme for Energy was to finance 
mature energy infrastructure projects 
that could deliver economic growth 
within a short period of time. There -
fore developing an internal energy 
market and providing security of 
energy supply benefits were not the 
primary objectives of the programme. 
All Member States were allocated 
some funding for energy infrastructure 
projects. The programme has largely 
failed to achieve its initial objective 
of delivering economic growth within 
a short period of time, as:
(a) some of the projects to which 
funds were allocated were not 
sufficiently mature. Projects worth 
422 million euro, or 18.6 % of the 
total EEPR grants awarded, have 
been terminated. For example, the 
Nabucco gas pipeline, the ITGI–
Poseidon gas interconnector, the 
GALSI pipelines and the Romanian 
gas reverse flow projects;
(b) there have been significant delays 
to the implementation of pro -
jects and, as a result, only 1.1 bil -
lion euro of payments under the 
EEPR have been executed as of 
28 February 2015. This represents 
48 % of the amounts initially 
allocated.105  
The objective of the Connecting Eur-  
ope Facility (CEF) in the energy field 
is to provide support to the imple -
mentation of the PCIs. Only PCIs which 
are not commercially viable under 
the existing regulatory framework, 
complemented by cross -border cost 
allocations, are eligible for funding 
from CEF. It provides grants and other 
financial instruments for works and 
necessary technical studies through 
calls for proposals.
106  
Aspects of the design of the CEF limit 
its potential to support the develop -
ment of the internal energy market:
(a) the Commission can only finance 
projects that are submitted in the 
calls for proposals. This means that 
the Commission has only limited 
possibilities to target specific PCIs;
(b) because maturity is an important 
award criterion for grants, the 
more mature actions are more 
likely to be funded. Such projects 
do not necessarily have the high -
est impact on the development of 
the internal energy market;
(c) as the state of internal energy 
market implementation in the 
Member States is not one of the 
criteria used for project selection, 
the Commission has only limited 
scope to use the CEF instrument to 
incentivise internal energy market- 
related reforms.
53 Observations
107  
Between 2007 and 2013, approximate -
ly 1.3 billion euro was allocated from 
the European Structural and Invest -
ment Funds  (ESIF) to finance electric -
ity and gas infrastructure. Between 
2014 and 2020, this figure should rise 
to approximately 2 billion euro. Eleven 
Member States received funding be -
tween 2007 and 2013, Poland was the 
largest recipient with 63 % of all ESIF 
allocations to energy infrastructure.
108  
Most of these allocations have been 
used for regional level interconnec -
tions and upgrading existing energy 
infrastructure within a Member State. 
Some has also been used for con -
structing cross -border interconnec -
tions, LNG terminals and underground 
gas storage. Between 2014 and 2020, 
six Member States — Bulgaria, Czech 
Republic, Greece, Lithuania, Poland 
and Romania — plan to use ESIF 
allocations for energy infrastructure 
investments.
109  
The project selection under the ESIF 
is up to the Member States. The 
Commission only approves the major 
projects69. When negotiating the Mem -
ber States’ Partnership Agreements 
and Operational Programmes for 
the 2014 to 2020 funding period, the 
Commission had the opportunity to 
seek to include internal energy market 
development-related performance 
indicators, but this did not happen. 
Investments in energy infrastructure 
are not a priority of the ESIF funds. 
They represent about 0.5 % of the total 
allocation of the ERDF, Cohesion Fund 
and ESF allocations both in the period 
of 2007 to 2013 and 2014 to 2020.Many EU co -financed energy 
infrastructures have yet to 
have impact on the internal 
energy market
110  
As part of the audit 15 energy infra -
structure projects which benefited 
from EU co -financing were reviewed, 
10 concerning gas and 5 concerning 
electricity (see Table 6 ). We analysed 
the projects’ potential impact on the 
functioning of the internal energy 
market.69 For energy infrastructure 
investments falling under the 
thematic objective for 
promoting sustainable 
transport and removing 
bottlenecks in key network 
infrastructures, projects with 
a total eligible cost over 
75 million euro, for other ESIF 
energy infrastructure 
investments, mainly falling 
outside the scope of this 
report, the threshold is 
50 million euro.
54 Observations
111 
Out of these projects, as at July 2015:
(a) one project has had a significant 
impact on the internal energy 
market — the EstLink 2  electricity 
interconnector between Finland 
and Estonia, which was completed 
and is fully in service (see Box  13).
(b) one other significant project has 
been completed and has recently 
become available for use, namely, 
the France–Spain electricity 
interconnector  (see also Box  10).
EstLink 2 project changed the electricity market in the region
The EstLink 2  received 100 million euro from the EEPR. The aim of the project was to construct a second 
electricity interconnector between Finland and Estonia with a transmission capacity of 650 MW. This project 
has proved successful insofar as having overcome the technical and other challenges to being completed and 
brought into service. It is having a positive effect on the electricity market, particularly in Estonia, where elec -
tricity prices have become less volatile and converged with those in Finland.Box 13
1. 330 kV Püssi substation
2. 650 MW Püssi converter station3. Underground cable4. Connection joints for the underground cable and submarine cable5. Submarine cable6. Connection station for the submarine cable and overhead power lines in Nikuviken7. Overhead lines8. 650 MW Anttila converter station9. 400 kV Anttila substation
© Elering
55 Observations
List of projects reviewed for the audit
ProjectStatus  
(as at June 2015)Member StatesProject cost  
(million euro)EU co‑financing  
(million euro)EU funding 
instrumentGasBulgaria–Greece interconnector Expected 2018 Bulgaria, Greece 220 45 EEPR
Bulgaria–Romania interconnector Expected 2015 Bulgaria, Romania 24 9 EEPR
Nabucco pipeline TerminatedAustria, Bulgaria, Hungary, 
Germany, Romania7 900  
(planned)200 
(allocated)EEPR
Latvia–Lithuania interconnector Completed 2013 Lithuania, Latvia 33 13 EEPR
Jurbarkas–Klaipeda pipeline Completed 2013 Lithuania 46 21 ESIF
Klaipeda–Kiemenai capacity 
enhancementOngoing Lithuania 64 28 CEF
Swinuojscie LNG terminal Expected 2015 Poland 65755 EEPR
199 ESIF
Gustorzyn–Odolanow pipeline Completed 2014 Poland 102 49 ESIF
GIPL interconnector Ongoing Poland, Lithuania 558 306 CEF
France–Spain interconnector Completed 2012 France, Spain 617 45 EEPR
Sub‑total 2 321 970ElectricityFrance–Spain interconnectorEntered service 
June 2015France, Spain 721 225 EEPR
Portugal–Spain reinforcement Completed 2011 Portugal, Spain 136 46 EEPR
EstLink 2 interconnectorEntered service 
2014Estonia, Finland 320 100 EEPR
Nordbalt interconnector Expected 2015 Sweden, Lithuania 366 175 EEPR
LitPol  
interconnectorExpected 2015Poland 528 207 ESIF
2 TEN‑E
Lithuania 132 2 TEN‑E
58 CEF (application)
Sub‑total 1 543 815
Total 3 864 1 785Table 6
56 Observations
112  
The other projects have not yet had an 
impact on the internal energy market 
to the same extent, because:
(a) one of the 10 gas projects is open -
ing new market perspectives, 
namely the GIPL project between 
Poland and Lithuania will allow gas 
trade between countries that cur -
rently have no interconnections. 
The other nine were focussed 
mainly on increasing the existing 
capacities or addressing security of 
energy supply concerns directly;(b) five of the 15 projects had been 
completed. The sooner projects 
are completed and enter into 
service the greater their impact 
on the internal market. However, 
projects which were not fully 
mature when financing decisions 
were made can take longer to 
complete than planned. Having 
said that, large-scale infrastructure 
projects are technically complex 
and planned works often take 
longer than expected, in part due 
to unforeseen circumstances (see 
example in Box  14).
NordBalt project
The NordBalt project  involves the construction of an electricity interconnector between Sweden and Lithu -
ania. It has the potential to have a significant impact on the functioning of the electricity market in the 
Member States which are cooperating under the BEMIP plan because it could increase trading in the common 
Nordic and Baltic power exchange. However, laying a cable through the Baltic Sea has proved to be a complex 
process and the project is planned to be completed only in June 2016, six and half years after its inclusion on 
the list of projects financed from the EEPR instrument.Box 14
Photo 3 — NordBalt ground station in Klaipeda, Lithuania
© Litgrid
57 Observations
(c) the potential of interconnectors 
to facilitate the flow of energy 
between neighbouring markets 
depends on the capacity of the en -
ergy transmission systems within 
Member States (see paragraph 73). 
This problem was observed in two 
of the projects reviewed for the 
audit (see Box  15).(d) the efficiency of two of the gas 
interconnector projects is likely 
to be limited as they involve the 
construction of new transmission 
capacity alongside existing capac -
ity, see examples in Box  16.
Examples of interconnectors not supported by domestic networks
The LitPol project  involves the construction of an electricity interconnector between Poland and Lithuania in 
order to reduce the isolation of the three Baltic countries from the European Union energy market. However, 
its potential use to import electricity to Lithuania from Poland is limited due to the lack of generation capac -
ity in Poland close to the border with Lithuania and insufficient interconnection to other Polish regions where 
there is higher electricity generation capacity. The bi -directional energy flows will only be possible if the Pol -
ish network is enhanced, but this is not foreseen before 2020.
The Bulgaria–Romania gas interconnector  will allow for 1.3 mcm/day natural gas supplies to flow from 
Romania to Bulgaria. However, under current conditions, low pressure in the Romanian gas system would pre -
vent cross -border flows to Bulgaria in this volume. Potential flows of gas to and from Hungary would also cur -
rently face such constraints. Additional investments are needed in the Romanian gas transmission network to 
connect the internal transmission system with the transmission transit pipeline that crosses Romania. Romania 
would also need to repeal a domestic law forbidding such gas exports.
New gas pipelines being built alongside existing pipelines
The gas interconnector projects between Romania, Bulgaria and Greece  are constructing new gas pipe -
lines in addition to existing pipelines. This is because the capacity of the existing gas transit network through 
Romania and Bulgaria to Greece has been reserved by a supplier from a third country under a long -term 
contract.Box 15 Box 16
58
 Conclusions and 
recommendations
113  
The EU’s objective of completing the 
internal energy market by 2014 was 
not achieved. Energy infrastructure in 
Europe is generally not yet designed 
for fully integrated markets and 
therefore does not currently provide 
effective security of energy supply. 
Financial support from the EU budget 
in the field of energy infrastructure has 
made only a limited contribution to 
the internal energy market and securi -
ty of energy supply (see paragraph 27).
The objective of completing the 
internal energy market by 2014 
was not achieved
114  
Since 2007, the internal energy market 
has been at the centre of EU energy 
policy development. The Third Energy 
Package, adopted in 2009, required the 
transposition of the gas and electricity 
directives by 3 March 2011. However, 
this objective was not achieved in 
that year. In 2011, the Council restated 
its commitment to the internal ener -
gy market, stating that it should be 
completed by 2014. However, even 
this later objective was not achieved 
due to a range of problems (see 
paragraph 29).115  
There remains a long way to go before 
the Third Energy Package could be 
deemed to be fully implemented. The 
Commission’s monitoring of imple -
mentation of its provisions in the 
Member States is still ongoing after 
the 2014 deadline passed (see para -
graphs 30 to 33).
Recommendation 1:  
Completing non -conformity  
checks
With the internal energy market 
not yet having been completed, the 
Commission should complete its as -
sessments and open any necessary 
infringement procedures against 
Member States by the end of 2016.
59 Conclusions and recommendations
116  
National regulatory authorities (NRAs) 
around the EU continue to face chal -
lenges related to their independence 
and their freedom to exercise profes -
sional judgement. Not all NRAs have 
resources available to them which are 
commensurate with the tasks they 
need to undertake, including coop -
erating in EU-level activities, such as 
those led by Agency for the Coopera -
tion of Energy Regulators (ACER). ACER 
does not have powers to compel NRAs 
in all Member States to provide it with 
relevant energy market data (para -
graphs 35 to 36).
Recommendation 2:  
NRAs and ACER
(a) The Member States should make 
sure that NRAs are independent 
and do not face restrictions to 
the scope of their role. The NRAs 
should have sufficient resources 
available for their activities, includ -
ing allowing them to participate 
fully in EU -level cooperation 
activities;
(b) The Commission should assure 
that ACER has the necessary pow -
ers to obtain from key institutions 
in the Member States the informa -
tion it needs to carry out the tasks 
assigned to it.117  
Important differences in how Member 
States organise their energy markets 
hold back the further development of 
the internal energy market. There are, 
in fact, 28 national legal frameworks, 
which, in practice form a patchwork 
of local, national and regional markets 
rather than an internal energy market. 
While the aim of unbundling and other 
measures was to create the regulato -
ry conditions for an internal energy 
market, a liberalised and competitive 
market has often not emerged. Further 
developing the EU internal energy 
market, by finding practical ways for 
these markets to operate together, 
remains a significant challenge. This 
is because there are several different 
trading mechanisms used in the EU 
and energy markets are influenced by 
various interventions (paragraphs 39 
and 43 to 46).
Recommendation 3:  
Transparent trading
The Commission should promote 
widespread development of transpar -
ent trading mechanisms for both gas 
and electricity. This should include 
facilitating and supporting the es -
tablishment of exchanges in Member 
States where they do not currently ex -
ist or where B2B trading mechanisms 
dominate.
60 Conclusions and recommendations
118  
Network codes are technical rules that 
seek to provide a basis for technical 
interoperability within electricity and 
gas transmission systems in the EU. 
The codes set out common techni -
cal standards that should ensure the 
free flow of energy across borders. 
Although recently progress has been 
made with approval of the network 
codes for gas, none of the electricity 
network codes have yet been finally 
approved via the comitology process. 
Some network codes are being ad -
opted by Member States before being 
finally approved in a framework of ear -
ly implementation regional initiatives 
(paragraphs 47 to 51).
Recommendation 4:  
Approving and 
implementing network 
codes
The Commission should expedite the 
process of comitology, with a view to 
securing approval of the electricity 
network codes by the end of 2015. It 
should also encourage ACER and the 
ENTSOs to support early implementa -
tion of network codes by the Member 
States in the framework of regional 
cooperation initiatives.119  
Although progress has been made, the 
full price effects of the internal energy 
markets have not yet been realised, 
and there remain significant energy 
price differences between Member 
States.
120  
Electricity wholesale prices have not 
converged in the EU, with substantial 
differences evident even between 
some neighbouring Member States. 
In order to stimulate cross -border 
electricity trade, the EU set a target 
that a Member States’ cross -border 
electricity interconnections should be 
at least 10 % of its installed production 
capacity. However, this target lacks 
relevance because it focuses on in -
frastructure development rather than 
being based on demand dynamic with 
a view to achieving price convergence 
(paragraphs 59 to 64).
121  
Even if the current gas target mod -
el, based on hub trading, were to 
be implemented, it may only have 
limited effect on average wholesale 
gas prices. Constructing significant 
gas pipelines across the EU as a way to 
facilitate the development of competi -
tive hub -based trading all over Europe 
would require significant investment. 
However, the economic case for 
seeking to do so may not exist in some 
cases. There are alternative ways to in -
troduce competition into gas markets, 
for example, by installing strategically 
placed LNG terminals to serve one or 
more national markets (paragraphs 65 
to 71).
61 Conclusions and recommendations
Recommendation 5:  
Market and infrastructure 
development models for 
electricity and gas
The Commission should:
(a) consider establishing electricity  
interconnection objectives based 
on market needs, rather than on 
fixed national production capacity;
(b) reassess the potential costs and 
benefits of the gas  target model, 
and consider, in the light of un -
certain demand, whether there 
are alternatives to the extensive 
construction of gas pipelines, such 
as the installation of strategically 
placed LNG terminals to serve 
one or more national markets 
using internal energy market- 
compatible solutions. This should 
be based on a comprehensive 
EU-level needs assessment (see 
Recommendation  7).
Energy infrastructure in 
Europe is not yet suited for 
fully integrated markets and 
therefore does not currently 
provide effective security of 
energy supply
122  
The energy infrastructure within and 
between Member States is not yet 
suited for the internal energy market. 
In practice, insufficient infrastructure 
capacity within a Member State can 
hold back potential imports and ex -
ports and the extent to which a Mem -
ber State can act as a transit country. 
Gaps also remain in the cross-border 
gas and electricity transmission in -
frastructure between Member States 
(paragraphs 73 to 81).Recommendation 6:  
Optimal use of the existing 
infrastructure
The Commission should:
(a) identify cross -border energy 
infrastructure that is not being 
used to its full potential to support 
the internal energy market, either 
because it is tied up in long-term 
bilateral contracts not allowing 
third party access, or because 
its technical capacities, such as 
reverse flows, are not being used;
(b) work with stakeholders in the 
Member States in order to improve 
the extent to which such infra -
structure is actually used continu -
ously for the benefit of the internal 
energy market;
(c) explore the benefits for setting 
up regional TSOs as a means 
to encourage and manage effi -
ciently energy flows across bor -
ders, making the most of existing 
infrastructure.
123  
A comprehensive EU-level energy 
infrastructure needs assessment is 
necessary to inform decisions about 
the development of the internal ener -
gy market and the security of energy 
supply (paragraph 82). With significant 
energy investments needed across 
the EU, such a comprehensive analysis 
is a crucial tool for targeting EU and 
other funds in the sector (paragraphs 
82, 84 and 99). At present, the plan -
ning tools used by the Commission, 
mainly the lists of projects of com -
mon interest and the 10-year network 
development plans, have important 
limitations (paragraphs 85 to 87). The 
Commission also does not have an ad -
vanced market development model to 
support the necessary needs analysis 
(paragraph 83).
62 Conclusions and recommendations
Recommendation 7:  
Drawing up 
a comprehensive EU-
level infrastructure needs 
assessment
The Commission should:
(a) draw up a comprehensive EU level 
energy infrastructure needs assess -
ment for the development of the 
internal energy market, this should 
function as a reference for the 
other documents such as TYNDPs;
(b) put in place, to support the needs 
assessment, a capacity to model 
energy markets including a broad 
range of demand projections, ei -
ther in -house or in the Agency for 
the Cooperation of Energy Regula -
tors (ACER);
(c) work with ENTSO -E and ENTSO -G 
so that the needs assessment 
functions as an input for internal 
energy market-related infrastruc -
ture planning in the EU, including 
ten-year network development 
plans (TYNDPs).124  
Developing cross-border energy 
infrastructure requires cooperation 
amongst neighbouring Member 
States. In this context, project fi -
nancing, the allocation of costs and 
obtaining planning permits can be 
challenging. There have been good 
experiences across the EU of region -
al cooperation in the energy sector, 
emerging in the form of both political 
and technical initiatives. Some of the 
Commission’s coordination activities 
have seen positive results (see para -
graphs 88 to 93).
European Union financial 
support in the field of energy 
infrastructure has made only 
a limited contribution to the 
development of the internal 
energy market and security of 
energy supply
125  
Insufficient prioritisation of projects 
has reduced the effectiveness of EU 
funding for energy infrastructure. The 
Commission has used several lists of 
specific projects as a way to prioritise 
investments from the EU budget and 
to identify projects that are eligible for 
financing. However, the Commission 
has not defined these lists on the basis 
of a comprehensive assessment of 
EU-level infrastructure development 
needs. This entails risks that under -
mine the usefulness of such lists as 
tools for prioritising investments and 
targeting EU funds (paragraphs 100 to 
103).
63 Conclusions and recommendations
Recommendation 8:  
Refine the use of lists of 
PCIs
The Commission should refine its plan -
ning procedures and in particular the 
prioritisation and funding of projects 
of common interest (PCIs), in the light 
of a comprehensive EU-level energy 
infrastructure needs assessment (see 
Recommendation 7 ).
126  
The main EU funding instruments for 
financing energy infrastructure proj -
ects, the EEPR, the Connecting Europe 
Facility and the European Structural 
and Investment Funds, are not de -
signed primarily to enhance the inter -
nal energy market, and this is evident 
in aspects of the way they are imple -
mented. CEF financing is not linked 
to energy market reforms, and the 
conditions concerning energy market 
development have not been included 
in the ESIF partnership agreements for 
the 2014 to 2020 period (paragraphs 
104 to 109).Recommendation 9:  
Proper and continuous 
functioning of IEM as 
a condition for EU energy 
infrastructure project 
financing
The Commission should make legis -
lative proposals on how to make its 
decisions to select energy infrastruc -
ture projects for funding subject to the 
proper and continuous functioning 
of the energy market in the Member 
States.
127  
There are examples of energy infra -
structure projects financed by the 
EU that have had a positive effect on 
the internal energy market and the 
security of supply. However, the im -
pact of many other projects has been 
limited so far. This is because some 
have lacked a focus on internal market 
development needs; few have been 
completed and entered into service; 
for some, capacity problems in neigh -
bouring Member States have held back 
their use; and the efficiency of some 
projects is limited because they seek 
to develop additional infrastructure 
alongside existing infrastructure (para -
graphs 110 to 112).
This report was adopted by Chamber II, headed by Mr Henri GRETHEN, Member 
of the Court of Auditors, in Luxembourg at its meeting of 21 October 2015.
 For the Court of Auditors
 Vítor Manuel da SILVA CALDEIRA
 President

64
 Annexes Annex I(a) Average retail electricity prices with taxes for household consumers: 1st quarter 
of 2015 in euro cents per 1 KWh
> 22.0119.01 – 22. 00 14.01 – 1 9.00 < 14.00Grey: non-EUPrices per kWh (c€)
 14.54
 20.23       
 18.26 17.67
 13.12 16.23 11.33
 9.31 13.17 19.37 15.84
 12.66
 14.43
 .79 12
 14.59
 .35 20
 24.21 12.47 17.41
 29.74 30.83
 18.08
 20.80 24.35 19.11
 22.53 22.33 10.06
Note:  The affordability of consumer prices is a separate issue, which should be considered in the context of the level of net disposable incomes in 
each Member State. As stated in paragraph 23, this audit did not cover energy poverty.
Source:  European Commission.
65 Annexes Annex I(b) Average electricity prices without VAT and non -recoverable taxes for industrial 
consumers: 1st quarter of 2015, euro cents per 1 kWh
 > 14.01 12.01 – 14. 00  9.01 – 12. 00 < 9.00 Grey: non-EU Prices per kWh (c€)
13.8010.24
16.09
15.439.568.628.61
8.358.966.977.44
8.87
8.38
8.27
11.15
10.95
17.0210.9514.94
15.828.47
10.23
10.8513.5212.84
12.0412.3510.06
Source:  European Commission.
66 Annexes Annex IIAssessed gas sourcing prices  paid by suppliers in the EU Member States — 2014 yearly 
average (euro per MWh)
Source:  ECA based on information provided by ACER. Cyprus and Malta do not currently have gas markets and are therefore not included. 25.0
 Hub price  Import prices declared at the border 25.4
 27.6
 28.9 26.4 24.3
 28.2 30.9 26.7 25.1 35.3 29.3 32.0 28.8
 27.6
 24.1
 23.9 23.7
 23.9  24.0
 24.7
 25.7  27.0
 26.2  31.8 24.1 22.1
 27.8 North
 24.7 South 26.4
67 Annexes Annex IIIMember States participation in the ACER working groups, January 2013 to May 2015
Board of 
RegulatorsElectricity Working 
GroupGas Working GroupImplementation, 
Monitoring and 
Benchmarking 
Working GroupMarket Integrity 
and Transparency 
Working Group
No of meetings held 22 24 25 24 20
Austria 22 24 25 19 20
Germany 22 23 25 17 19
United Kingdom 22 24 24 15 20
France 20 23 24 17 20
Belgium 22 21 25 24 11
Spain 22 19 25 19 17
Sweden 22 23 21 17 19
Portugal 22 24 25 5 16
Italy 22 20 21 11 16
Netherlands 22 24 22 6 16
Poland 21 22 25 2 16
Hungary 22 18 22 0 19
Denmark 22 21 16 6 11
Finland 22 21 15 0 16
Czech republic 22 13 9 4 19
Ireland 22 14 14 0 12
Luxembourg 19 8 9 0 14
Slovenia 18 0 8 0 7
Croatia 15 3 5 1 4
Greece 20 1 5 0 2
Lithuania 18 1 3 0 2
Latvia 16 0 6 0 1
Malta 22 0 0 0 0
Romania 18 1 2 0 1
Estonia 18 0 0 0 0
Cyprus 14 0 0 0 0
Bulgaria 2 0 0 0 0
Slovakia 1 0 0 0 0
68
Recommendation 1 
The Commission accepts the recommendation. 
The Commission services have declared enforce -
ment of Third Package rules a priority in 2015. The 
compliance checks on the Third Package implemen -
tation have been completed in all 28 Member States 
and all potential issues which are incompatible with 
internal market legislation with the authorities of 
the Member States concerned are being raised. 
Recommendation 2 (a)
This recommendation is addressed to Member 
States. The Commission however agrees with the 
recommendation and will exert a particular scrutiny 
on the independence of NRAs during the compli -
ance assessment of Third Internal Energy Market 
rules.
Recommendation 2 (b)
The Commission accepts the recommendation and 
is looking into possibilities to reinforce the existing 
powers of ACER, including vis-à-vis Member States, 
in order to adapt it to the realities of the more inte -
grated internal market.
Recommendation 3 
The Commission accepts the recommendation.
In order to address the problem of underdeveloped 
trading via exchanges, the Commission has adopted 
regulations in the field of gas and electricity which 
will make the installation of energy exchanges 
obligatory (e.g. ‘CAM’ and ‘balancing’ regulations 
in gas, ‘CACM’ regulation, establishing the rules for 
EU-wide market coupling, in electricity). In addi -
tion, the implementation of Regulation (EU) No 
1227/2011 of the European Parliament and of the 
Council on wholesale energy market integrity and 
transparency (REMIT) is ongoing. Executive summary
IV
The Commission underlines the importance of 
a well-functioning electricity and gas market for 
security of supply. 
V
The communication ‘Progress towards complet -
ing the Internal Energy Market’ (COM(2014) 634 
final) recognised that Europe was well underway 
towards completing the internal energy market. 
Cross-border trade is increasing, renewables are 
being successfully integrated in the system and 
work has begun on rolling out smart grids and 
facilitating distributed generation. But it was also 
clear that the work is not completed yet; obstacles 
prevent the market from functioning smoothly. The 
Energy Union project is designed to address these 
obstacles. The Commission has taken concrete steps 
to remove the remaining market barriers to the 
internal energy market, notably in its market design 
initiative.
With regard to energy infrastructure, it is important 
to note that:
— energy infrastructure is expected to be financed 
by the market — that is user tariffs approved by 
independent regulatory authorities; financial 
support from EU budget therefore should be 
the exception rather than the rule;
— where financial support has been allocated, the 
security of supply has been significantly im -
proved for certain regions (see for instance the 
examples for EEPR under the Court’s observa -
tion in paragraph 103 or several of the audited 
projects co-financed by CEF or ESIF mentioned 
in the Court’s observation to paragraphs 
109 -111).Reply of the  
Commission
Reply of the Commission 69
VII
The Commission is of the view that trans-European 
infrastructure needs to be improved to deliver its 
full effect on the IEM. The Commission acknowl -
edges that a comprehensive assessment of EU-level 
infrastructure needs is necessary, but also wishes 
to emphasise the extent to which infrastructure 
planning does already take place at large degree 
on EU level, and how this feeds into Commission 
policy. Although procedures and tools may need to 
be optimised, there is already a sound assessment 
of what is needed in terms of key European energy 
infrastructure. Please see Commission’s reply to 
recommendation 7 and to paragraph 82.
Recommendation 6 (a)
The Commission accepts the recommendation. It 
has already started to implement actions in that 
sense. This is the case especially for the high-level 
group on gas connectivity in central and south- 
east Europe. The aim of the group is to coordinate 
efforts to facilitate cross-border and trans-European 
infrastructure that diversifies gas supplies to the 
region, as well as to implement harmonised rules.
Recommendation 6 (b)
The Commission accepts the recommendation. It 
is already acting in that direction in the framework 
of the regional initiatives: one of the main objec -
tives of regional initiatives is to focus on the bot -
tlenecks (physical or regulatory) in cross-border 
infrastructure.
Recommendation 6 (c)
The Commission accepts the recommendation. 
TSO cooperation has already been made manda -
tory in many implementing rules (‘Network Codes’) 
concerning grid operation and energy trading. 
In the context of the electricity market design 
initiative, it is exploring possibilities for enhanced 
cooperation and shared responsibilities between 
TSOs, based on the concept of regional security 
coordination initiatives (RSCIs), in particular in 
closely connected regions, as a first step towards 
more integration of TSOs at regional level. Recommendation 4
The Commission accepts the recommendation.
The Commissioner for Climate Action and Energy 
has declared the adoption of the network codes 
a priority. The Commission has worked intensively, 
in cooperation with regulators, TSOs and other 
stakeholders, to reformulate the proposed network 
codes in a manner that guarantees their neutrality 
and ensures effective implementation. Eight of ten 
proposed electricity network codes are expected to 
be voted by the Committee by the end of 2015. 
The Commission actively promotes early implemen -
tation of the network codes in the framework of 
regional cooperation initiatives.
Recommendation 5 (a) 
The Commission accepts the recommendation.
Whereas the current 10 % target for 2020 is based 
on production capacity, cost aspects and the poten -
tial of commercial exchanges will be taken into 
account and play an important role in modelling 
the 2030 interconnection target at the regional or 
country level. This will add the necessary flexibility 
to adjust the minimum 15 % interconnection target 
for electricity in 2030 to market needs.
Recommendation 5 (b)
The Commission accepts this recommendation. 
The 2015 gas TYNDP already provides a good 
assessment of infrastructure needs under a wide 
variety of scenarios on future demand, prices, 
infrastructure development and other aspects. The 
analysis clearly shows that not all of the planned 
projects will be needed. The ongoing PCI process 
builds on this assessment. Furthermore, in order 
to arrive at an enhanced needs assessment for the 
EU gas market, preparatory work on an EU strategy 
for LNG and gas storage has started and the Com -
mission will publish its LNG and storage strategy in 
January 2016.
Reply of the Commission 70
For instance PCI project selection aims at identify -
ing those projects that contribute most to achiev -
ing the EU energy policy objectives (affordability, 
security of supply, sustainability). 
A more robust needs analysis combining both elec -
tricity and gas markets will be in place by the end of 
2016. Please see the Commission’s reply to recom -
mendation 7(a).
As regards the funding, when selecting actions for 
financial support, for those projects where a need 
for public support has been identified, maturity as 
well as other evaluation criteria are also taken into 
account. The Commission is working closely with 
the EIB and other stakeholders to increase techni -
cal assistance for improving the pipeline of projects 
of strategic interest. Therefore, no further action is 
foreseen.
Recommendation 9 
The Commission does not accept the 
recommendation.
The Commission strongly believes that equal 
progress is needed on infrastructure and market 
regulation for ensuring an effective internal energy 
market. However, a rigid conditionality would be 
too complex to implement in a legally enforceable 
manner and risks being detrimental to the develop -
ment of needed infrastructure. Recommendation 7 (a)
The Commission accepts the recommendation. 
It has already acted in that direction. There has 
been continuous work to develop the TYNDPs and 
(since 2013) the accompanying cost-benefit analy -
sis. In addition, Article 11(8) of the TEN-E regulation 
foresees an (interlinked) electricity and gas network 
model to be developed by the ENTSOs and submit -
ted to the Commission and ACER by 31 Decem -
ber 2016. The Commission will ensure that this 
happens on time.
Recommendation 7 (b)
The Commission partially accepts the 
recommendation.
Having analytical and modelling capacities to be 
created in-house could have considerable resource 
implications either for the Commission or for ACER. 
Having this capacity sourced out to the ENTSOs 
with oversight and supervision by ACER and the 
Commission could be considered to be a relevant 
alternative.
Recommendation 7 (c)
The Commission accepts the recommendation.
The energy system-wide cost–benefit analysis 
underpinning the planning and needs assessment 
and the TYNDPs are established by the ENTSOs in 
close cooperation with both the Commission and 
ACER.
Recommendation 8
The Commission partially accepts the 
recommendation. 
As regards the prioritisation, the Commission recalls 
that improving the planning procedures is part of 
the regular cooperation mechanism with all stake -
holders involved.
Reply of the Commission 71
Common Commission reply to 
paragraphs 14 to 18
In energy infrastructure, the interconnectivity 
of the European electricity and gas transmission 
systems is increasing but significant infrastructure 
investments are still needed. By the end of 2015, 
13 projects from the first Union list of projects of 
common interest (PCIs) for gas and electricity will 
be completed. Slightly more than 100 PCIs are in 
the permit granting phase and can be expected to 
enter the construction phase shortly. While most 
of the investments in energy infrastructure are 
made by the private sector, a set of dedicated EU 
tools is available to help overcome further finan -
cial challenges. Since the launch of the Connect -
ing Europe Facility (CEF) in 2014, €796 million have 
been allocated in the form of grants to proposals 
for key energy infrastructure projects across Europe. 
Complementary support is also available from the 
European Structural and Investment Funds (ESIF). 
Furthermore, the European Fund for Strategic 
Investments will provide further support to energy 
projects of strategic significance. 
To address more effectively specific infrastructure 
problems in some regions of Europe, enhanced 
regional cooperation between concerned Member 
States has been stepped up. It resulted in the crea -
tion of High-Level Groups for the gas and electric -
ity interconnectivity of the Iberian Peninsula and 
Central East South Europe Gas Connectivity (CESEC) 
as well as a reform of the High-Level Group for the 
Baltic Sea region (BEMIP). The Groups are expected 
to propose concrete solutions to infrastructure 
problems and to ensure implementation of the 
relevant projects.Introduction
03
Τhe primary responsibility for application and 
enforcement of EU law lies with the Member States 
and their willingness to fully and correctly imple -
ment the legislation is of utmost importance. 
National governments currently remain responsible 
for developing energy legislation and policies that 
effect the internal market. Also as owners of energy 
supply and transmission companies they remain 
a key player in EU energy markets.
05
The Commission considers that a truly open, com -
petitive and well-connected energy market is the 
best way to ensure security of energy supply and 
will allow Europe to make the necessary transition 
to a low-carbon energy sector in the most cost-
efficient and secure way. 
The Commission, endorsed by Council and Parlia -
ment, has therefore developed a Strategy for an 
Energy Union, and a key part of this strategy con -
cerns the commitment to remove the main obsta -
cles to more integrated energy markets in Europe. 
As part of this strategy, it will reinforce its efforts to 
enforce the full implementation of existing energy- 
and related legislation. The Commission has also 
launched a comprehensive review of the existing 
EU energy legislation, notably in the field of elec -
tricity (‘Market Design Initiative’), in order to adapt 
the existing ‘Third Package’ rules where necessary 
to promote market integration. In addition, it has 
started a comprehensive revision process of its 
legislation related to security of supply.
13
See Commission reply to paragraph 5.
The Commission considers that since Member 
States are obliged to take into account the effects 
of their national decisions on neighbouring coun -
tries under EU law, the organisation of an internal 
energy market requires close cooperation between 
the EU and Member States/national governments. 
Reply of the Commission 72
40
The Commission’s market design initiative launched 
on 15 July 2015 (COM (2015)340) aims precisely at 
strengthening the legal framework for the coopera -
tion between TSOs.
44
The Commission also considers that in the current 
context, the existing mechanisms are heterogene -
ous. To overcome this situation, the Commission has 
adopted legislation to harmonise trading mecha -
nisms for gas and electricity. The implementation of 
this legislation is ongoing (notably by the adoption 
of the Guideline on Capacity Allocation and Con -
gestion Management (CACM) in electricity and the 
CAM/CMP and Balancing network codes/Guidelines 
in gas) and will significantly reduce the inefficien -
cies in the current regulatory framework concerning 
energy trading. 
46
The Commission considers the issue of uncoordi -
nated state interventions in energy markets as one 
of the major obstacles to an integrated market, and 
therefore of utmost importance for the functioning 
of the IEM — and security of supply. The Commis -
sion has outlined the main issues and its proposed 
measures in its communication ‘Delivering the 
internal electricity market and making the most of 
public intervention’ (C(2013) 7243 final) and puts 
a specific emphasis on the removal of unnecessary 
interventions in its ongoing market design initiative 
(see ‘Communication launching the public consulta -
tion process on a new energy market design’, (COM 
2015(340))).
50 (a)
The Commission notes that national TSOs, NRAs and 
Member States have often been reluctant to agree 
to an adaptation of existing national or regional 
rules in favour of a compromise solution which 
would create a more integrated/larger regional 
or EU-wide market. The Commission is promoting 
further IEM integration even for markets which are 
adequately functioning so that European integra -
tion can fully materialise its potential benefits, such 
as more competition, liquidity-increased supply 
security.Observations
29 — First alinea
Member States hold the key to the creation of 
an internal market. See also Commission reply to 
paragraph 3. Their action determines whether bar -
riers to cross-border trade of energy are actually 
removed and whether system operation is coordi -
nated with neighbours. Only with Member States 
who work proactively towards removing barriers to 
cross-border trade can the Commission succeed in 
its task to create an internal energy market.
32 — Third alinea
The issues related to consumer protection in the 
Third Package are an additional important aspect 
which the Commission verifies in its transposition 
and conformity checks.
35
The Commission considers that solutions for 
contentious cross-border issues between Member 
States become increasingly important. The closer 
markets become integrated, the more there is 
a need for an independent authority to moderate 
and ultimately solve conflicts between Member 
States on regulatory issues. 
The Commission continues to encourage all Mem -
ber States to participate in working group meet -
ings. To ensure transparency as regards their work, 
the meeting results are made accessible to all 
Member States.
Reply of the Commission 73
51
The Commission notes that in particular in the field 
of electricity TSOs and NRAs have been very active 
in early implementation projects of network codes 
(see e.g. the voluntary market coupling process, the 
balancing initiatives or the work on Regional Secu -
rity Coordination Centres).
53
The Commission is actively working with Bulgaria 
to speed up the process of establishing an energy 
exchange in order to take part fully in EU-wide 
energy trading (‘market coupling’), including with 
Energy Community countries (together forming the 
‘8. Region’).
54
The Commission notes that the REMIT monitoring 
framework created by the REMIT Implementing 
Regulation EU 1348/2014 has not yet entered into 
force as concerns ‘B2B-trade’ (so-called ‘non-stand -
ard transactions’). The regulation so far only covers 
so-called ‘standard transactions’ (i.e. transaction at 
trading places). The provisions covering ‘non-stand -
ard’ transactions (i.e. bilateral transactions outside 
trading places) will enter into force in March 2016.
59
Price convergence is behind expectations, mainly 
due to largely differing state interventions, which 
favour very different forms of electricity supply. 
However, internal market initiatives such as market 
coupling have certainly aligned prices (see recent 
experience with flow-based market coupling) and 
have the potential to do so further — in particular, 
when Member States decide for a greater alignment 
of their state interventions. 
61
The CACM regulation, becoming legally binding 
in all Member States in August 2015, has created 
harmonised trading mechanisms. The Commission 
agrees that full price convergence is still hampered 
by other factors (such as missing interconnection, 
uncoordinated state interventions in different 
Member States, etc.).50 (b)
Adopting EU legislation on technical rules requires 
changes to established national systems and 
therefore finding compromises between 28 Mem -
ber States on often complex technical questions of 
system operation or energy trading, with significant 
distributive effects. This limits the ability to plan 
precisely how long it takes to find the necessary 
compromises.
The Commission has taken steps to provide for clear 
and transparent planning by regularly publishing 
the expected adoption process.
50 (c)
The Commission is looking at possible improve -
ments for the network code adoption process in the 
framework of its market design initiative.
50 (d)
Network codes and guidelines are Commission doc -
uments aiming at removing trade barriers through 
an alignment of market and grid operation rules. 
It is the Commission’s task to ensure that the draft 
texts as proposed by ENTSO-E and ACER comply 
with EU law, are neutral towards all stakeholders 
and do not just confirm the status quo, but deliver 
actual progress for the internal energy market (see 
Commission’s reply to paragraph 50(a)).
In the case of the proposed electricity codes, the 
Commission had to work intensively on the pro -
posed texts before being able to adopt them as EU 
law. The adoption process therefore took longer 
than originally expected, also because of the signifi -
cant economic relevance and the possible distribu -
tive effects of the adopted rules. The time spent to 
redraft the codes and to negotiate with Member 
States and stakeholders concerning the need for 
ambitious legislation was well invested, as the ulti -
mately adopted codes will bring true harmonisation 
progress.
Reply of the Commission 74
common interest (PCI). The process of selecting PCIs 
is done in a transparent and robust manner.
83
Taking into account restrictions on its staffing levels 
(and similar limitations at ACER), the Commission 
considers that infrastructure modelling as well as 
developing a range of scenarios could be done by 
the ENTSOs under close supervision of the Commis -
sion and ACER. 
It should be noted that the 2014 version of the 
TYNDP in electricity already includes four scenarios. 
Methodology and scenario building can be refined 
and updated, and the Commission as well as ACER 
closely cooperate with the ENTSOs on this.
84
Funding is not only based on a predefined needs 
assessment (top down) but necessarily must be 
assessed and evaluated against specific require -
ments. When assessing specific projects, maturity 
is one of the key criteria, together with the benefits 
a project will deliver to the region it is located in. 
This goes for both financial instruments and grants. 
86 — Fourth alinea
TYNDPs are not aiming at fully corresponding to 
national plans, as they are meant to be more than 
the listing of all national plans. They focus on trans-
European infrastructure development serving the 
principal objectives of market integration, security 
of supply and sustainability.
87
Planning has to rely on sets of complete, reliable 
and robust data. Obtaining this data, notably from 
project promoters, but also from Member States, is 
indeed one of the key challenges for the next round 
of TYNDPs. 64
The Commission agrees that price regulation lead -
ing to energy prices below cost should be forced 
out and has taken up this issue in discussions with 
Member States, as well as in infringement proce -
dures. The European Court of Justice has recently 
endorsed the Commission’s enforcement action 
against regulated prices (C-36/14). 
70
The Commission has a department working on 
market monitoring and energy forecasts. The Com -
mission acknowledges that its capacity on complex 
analysis is limited due to resource constraints. It 
would welcome the strengthening of its capacities.
In any case, the Commission may need to refer to 
external expertise.
75
The main instrument for helping Member States to 
achieve the 10 % target is identifying and support -
ing the implementation of relevant projects of com -
mon interest. For example, a substantial part of the 
action plan of the regional initiative in south-west 
Europe is dedicated to increase the interconnection 
rate between the Iberian Peninsula and the conti -
nental electricity market.
82
The Commission acknowledges that the com -
prehensive assessment of EU-level infrastructure 
needs is necessary, but also wishes to emphasise 
the extent to which infrastructure planning does 
already take place at EU level and how this feeds 
into Commission policy.
The ten-year network development plans (TYNDPs) 
prepared by the European Network of Transmission 
Systems Operators (ENTSO) are based on a thorough 
evaluation of infrastructure needs, which also fac -
tors in demand. The frequency with which they are 
updated, i.e. every 2 years, ensures that the change in 
both demand and generation patterns is reflected in 
the plan. Based on these plans and using the meth -
odology from the energy system-wide cost–benefit 
analysis as prescribed in the TEN-E regulation pro -
jects are then selected for the Union list of projects of 
Reply of the Commission 75
104
The Commission concedes that delays in project 
implementation have prevented the EEPR pro -
gramme from rapidly delivering economic growth.
However, their long-term benefits are considerable, 
especially with regard to security of supply:
All but one of the reverse flow and interconnections 
projects in central and eastern Europe have been 
completed, thereby significantly improving the 
resilience of the EU gas grid in case of disruptions of 
supply similar to the one experienced in early 2009.
The ‘Nordbalt 02’ project helped complete the nec -
essary upgrade in the Lithuanian transmission grid 
to facilitate the flow of electricity through the inter -
connector. ‘Estlink 2’ connected the Estonian grid/
Baltic grid to the Nordic power market by a sub-sea 
cable to Finland.
A new sub-sea cable connection between Italy and 
Malta put an end to the isolation of the Maltese grid 
from the rest of Europe.
109
For the Operational Programmes of the 2014-2020 
period, only six Member States have chosen the 
ERDF Investment Priority linked, inter alia, with 
improving security of supply through the develop -
ment of smart energy storage and transmission 
systems. A specific ex ante  conditionality is foreseen 
in the legislation related to this investment priority, 
ensuring consistency with relevant parts of internal 
energy market legislation and the PCI framework. 
Result indicators are set in the relevant Operational 
Programmes (rather than Partnership Agreements) 
for each of the specific objectives agreed and 
include result indicators related to aspects of the 
internal energy market.90
The Commission has declared regional market 
integration as a key instrument to achieve progress 
with the internal energy market. It will continue 
to actively support and further develop regional 
initiatives in all fields of the internal market (e.g. 
infrastructure, energy trading, system opera -
tion, generation adequacy, renewables support 
schemes), without losing the ultimate goal of an 
EU-wide integrated market.
100
In both gas and electricity the process of develop -
ing the ten-year network development plans by the 
respective ENTSOs gives a good oversight of where 
grid investments are required at a European level.
These feed into procedures such as the PCI list. 
However, it is important to recall that priority or 
strategically important projects do not necessarily 
require EU-level funding to proceed. Other non-
financial barriers (e.g. permit granting) are often 
more important. The PCI process aims to allow 
these barriers to be addressed. If there are specific 
barriers related to finance, then support from the 
EU budget is considered (for example under the 
Connecting Europe Facility). This is why generally 
lists are not established with the sole aim of prior -
itising investments from the EU budget.
103
The list of projects of common interest is based on 
a thorough assessment which is being improved by 
refining various aspects of the cost–benefit analysis 
(for example, how to value the security of supply). 
According to the legislation in place on the Con -
necting Europe Facility being on the list is one pre -
requisite for obtaining financial support. However, 
the decision on giving support is taken, in line with 
the current legal framework, after having examined 
the application on the basis of a set of award criteria 
that take into account policy objectives as well as 
technical and financial aspects. 
Reply of the Commission 76
Recommendation 1
The Commission accepts the recommendation. 
The Commission services have declared enforce -
ment of Third Package rules a priority in 2015. The 
compliance checks on the Third Package implemen -
tation have been completed in all 28 Member States 
and all potential issues which are incompatible with 
internal market legislation with the authorities of 
the Member States concerned are being raised. 
Recommendation 2 (a)
This recommendation is addressed to Member 
States. The Commission, however, agrees with the 
recommendation and will exert a particular scrutiny 
on the independence of NRAs during the compli -
ance assessment of Third Internal Energy Market 
rules.
Recommendation 2 (b)
The Commission accepts the recommendation and 
is looking into possibilities to reinforce the existing 
powers of ACER, including vis-à-vis Member States 
in order to adapt to the realities of the more inte -
grated internal market.
Recommendation 3
The Commission accepts the recommendation.
In order to address the problem of underdeveloped 
trading via exchanges, the Commission has adopted 
regulations in the field of gas and electricity which 
will make the installation of energy exchanges 
obligatory (e.g. ‘CAM’ and ‘Balancing’ Regulations 
in gas, ‘CACM Regulation, establishing the rules for 
EU-wide market coupling, in electricity. In addi -
tion, the implementation of Regulation (EU) No 
1227/2011 of the European Parliament and of the 
Council on wholesale energy market integrity and 
transparency (REMIT) is ongoing. Supporting the shift towards a low-carbon econ -
omy, including investments in energy efficiency, 
renewable energy and smart distribution grids, is 
a priority for the ESIF in the 2014-2020 period, in 
particular with mandatory minimum allocations for 
the ERDF. Investments in other energy infrastruc -
ture such as removing bottlenecks in key network 
infrastructures is important for specific Member 
States. Such investments indeed represent on aver -
age about 0.5 % of the total allocation of the ERDF, 
CF and ESF, both in the period of 2007 to 2013 and 
2014 to 2020, but in some Member States the share 
is higher (around 2 %), reflecting national needs 
and priorities.
112(b)
The implementation of all projects co-funded by 
the EU budget is closely monitored and requests by 
the project promoters to amend the grant decisions 
are carefully examined and also rejected in case the 
arguments brought forward are insufficient. 
Conclusions and recommendations
113
It is important to note that: 
— Energy infrastructure is expected to be financed 
by user tariffs and the market; financial support 
from the EU budget therefore should be the 
exception rather than the rule.
— Where financial support has been allocated, 
the security of supply has been significantly im -
proved for certain regions (see for instance the 
examples for EEPR in the Court’s observation in 
paragraph 103 or several of the audited projects 
co-financed by CEF or ESIF mentioned in the 
Court’s observations in paragraphs 109-111).
Reply of the Commission 77
Recommendation 5 (b)
The Commission accepts this recommendation. 
The 2015 gas TYNDP already provides a good 
assessment of infrastructure needs under a wide 
variety of scenarios on future demand, prices, 
infrastructure development and other aspects. The 
analysis clearly shows that not all of the planned 
projects will be needed. The ongoing PCI process 
builds on this assessment. Furthermore, in order 
to arrive at an enhanced needs assessment for the 
EU gas market, preparatory work on an EU strategy 
for LNG and gas storage has started and the Com -
mission will publish its LNG and storage strategy in 
January 2016.
Recommendation 6 (a)
The Commission accepts the recommendation.
It has already started to implement actions in that 
sense. This is the case especially for the high-level 
group on gas connectivity in central and south- 
east Europe. The aim of the group is to coordinate 
efforts to facilitate cross-border and trans-European 
infrastructure that diversifies gas supplies to the 
region, as well as to implement harmonised rules.
Recommendation 6 (b)
The Commission accepts the recommendation. 
It is already acting in that direction in the frame -
work of the regional initiatives: one of the main 
objectives of regional initiatives is to focus on the 
bottlenecks (physical or regulatory) in cross-border 
infrastructure.
Recommendation 6 (c)
The Commission accepts the recommendation. 
TSO cooperation has already been made manda -
tory in many implementing rules (‘Network Codes’) 
concerning grid operation and energy trading. 
In the context of the electricity market design 
initiative, it is exploring possibilities for enhanced 
cooperation and shared responsibilities between 
TSOs, based on the concept of Regional Security 
Coordination initiatives (RSCIs), in particular in 
closely connected regions, as a first step towards 
more integration of TSOs at regional level. Recommendation 4
The Commission accepts the recommendation.
The Commissioner for Climate action and energy 
has declared the adoption of the network codes 
a priority. The Commission has worked intensively, 
in cooperation with regulators, TSO and other 
stakeholders, to reformulate the proposed network 
codes in a manner that guarantees their neutrality 
and ensures effective implementation. 8 of 10 pro -
posed electricity network codes are expected to be 
voted by the Committee by the end of 2015. 
The Commission actively promotes early implemen -
tation of the network codes in the framework of 
regional cooperation initiatives.
120
Price convergence is behind expectations, mainly 
due to largely differing state interventions, which 
favour very different forms of electricity supply. 
However, internal market initiatives such as market 
coupling have certainly aligned prices (see recent 
experience with flow-based market coupling) and 
have the potential to do so further — in particular, 
when Member States decide for a greater alignment 
of their state interventions. 
Recommendation 5 (a)
The Commission accepts the recommendation. 
Whereas the current 10 % target for 2020 is based 
on production capacity, cost aspects and the poten -
tial of commercial exchanges will be taken into 
account and play an important role in modelling 
the 2030 interconnection target at the regional or 
country level. This will add the necessary flexibility 
to adjust the minimum 15 % interconnection target 
for electricity in 2030 to market needs. 
Reply of the Commission 78
These feed into procedures such as the PCI list. 
However, it is important to recall that priority or 
strategically important projects do not necessarily 
require EU-level funding to proceed. Other non-
financial barriers (e.g. permit granting) are often 
more important. The PCI process aims to allow 
these barriers to be addressed. If there are specific 
barriers related to finance, then support from the 
EU budget is considered (for example under the 
Connecting Europe Facility). This is why generally 
lists are not established with the sole aim of prior -
itising investments from the EU budget.
Recommendation 8
The Commission partially accepts the 
recommendation. 
As regards, the prioritisation, the Commission 
recalls that improving the planning procedures is 
part of the regular cooperation mechanism with all 
stakeholders involved.
For instance PCI project selection aims at identify -
ing those projects that contribute most to achiev -
ing the EU energy policy objectives (affordability, 
security of supply, sustainability). 
A more robust needs analysis combining both elec -
tricity and gas markets will be in place by the end of 
2016. Please see Commission’s reply to recommen -
dation 7(a).
As regards the funding, when selecting actions for 
financial support, for those projects where a need 
for public support has been identified, maturity as 
well as other evaluation criteria are also taken into 
account. The Commission is working closely with 
the EIB and other stakeholders to increase techni -
cal assistance for improving the pipeline of projects 
of strategic interest. Therefore, no further action is 
foreseen.Recommendation 7 (a)
The Commission accepts the recommendation.
It has already acted in that direction. There has 
been continuous work to develop the TYNDPs and 
(since 2013) the accompanying cost-benefit analy -
sis. In addition, Article 11(8) of the TEN-E regulation 
foresees an (interlinked) electricity and gas network 
model to be developed by the ENTSOs and submit -
ted to the Commission and ACER by 31 Decem -
ber 2016. The Commission will ensure that this 
happens on time.
Recommendation 7 (b)
The Commission partially accepts the 
recommendation.
Having analytical and modelling capacities to be 
created in-house could have considerable resource 
implications either for the Commission or for ACER. 
Having this capacity sourced out to the ENTSOs 
with oversight and supervision by ACER and the 
Commission could be considered to be a relevant 
alternative.
Recommendation 7 (c)
The Commission accepts the recommendation.
The energy system-wide cost–benefit analysis 
underpinning the planning and needs assessment 
and the TYNDPs are established by the ENTSOs in 
close cooperation with both the Commission and 
ACER.
125
In both gas and electricity the process of develop -
ing the ten-year network development plans by the 
respective ENTSOs gives a good oversight of where 
grid investments are required at a European level.
Reply of the Commission 79
126
As regard the ESIF, ERDF under the thematic 
objective for promoting sustainable transport and 
removing bottlenecks in key network infrastruc -
tures is designed to improve energy security of 
supply for both domestic and neighbourhood coun -
tries. Security of supply is one of the internal market 
objectives. ESIF ex ante  conditionalities, introduced 
in the 2014-2020 regulatory framework to ensure 
the effectiveness and efficiency of the ESIF invest -
ments, contribute to deliver internal market reforms 
and to help in better implementation of the ESIF- 
funded projects.
The CEF clearly has internal energy market objec -
tives as stated in Article 4 of the regulation. This is 
underlined as one of the priority objectives to be 
addressed by the first two work programmes in 
Article 17 (6).
However, it is not feasible to link CEF funding to 
the absence/presence of internal energy market 
reforms as explained in the Commission’s reply to 
recommendation 9.
Recommendation 9
The Commission does not accept the 
recommendation.
The Commission strongly believes that equal 
progress is needed on infrastructure and market 
regulation for ensuring an effective internal energy 
market. However, a rigid conditionality would be 
too complex to implement in a legally enforceable 
manner and risks being detrimental to the develop -
ment of needed infrastructure. 

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This audit sought to determine whether implementation of 
internal energy market policy measures and EU spending on 
energy infrastructure have provided security of energy 
supply benefits effectively. The EU’s objective of completing 
the internal energy market by 2014 was not reached. Energy 
infrastructure in Europe is generally not yet designed for fully 
integrated markets and therefore does not currently provide 
effective security of energy supply. Financial support from 
the EU budget in the field of energy infrastructure has made 
only a limited contribution to the internal energy market and 
security of energy supply. 
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