EUROPEAN COMMISSION Brussels, 6.6.2018 SWD(2018) 312 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Regulation of the European Parliament and the Council establishing the Connecting Europe Facility and repealing Regulations (EU)

No 1316/2013 and (EU) No 283/2014 {COM(2018) 438 final}

{SEC(2018) 292 final}

{SWD(2018) 313 final}



Table of contents 1Introduction: Political and legal context 1.1Scope and context 1.2Lessons learned from previous programmes 1.3Results from the consultation activities 2The Objectives 2.1Challenges for the programmes of the next MFF 2.2Objectives of the programmes for the next MFF 3Programme structure and priorities 3.1The core priorities remain focused on the trans-European networks 3.2The scope of intervention in the digital sector is redefined in complementarity with the new Digital Europe Programme and with the centralisation of all financial instruments under InvestEU 3.3The scope of intervention in the energy sector is extended to targeted cross-border cooperation in the field of renewable energy under specific circumstances 4Delivery mechanisms of the intended funding 4.1Changes in the programme delivery according to the Commission's global simplification measures 4.2Direct management of CEF and its benefits 4.3Proposed changes in the programme management by the parent DGs and the Agency 5How will performance be monitored and evaluated? Annex 1: Procedural information Annex 2: Stakeholder consultation

Annex 3: Comprehensive assessment of the extension of scope of the energy window towards targeted cross-border cooperation in renewables Annex 4: Further Background regarding the scope of CEF Digital Glossary Term or acronym Meaning or definition CEF Connecting Europe Facility EEPR European Energy Programme for Recovery (EEPR) EFSI European Fund for Strategic Investments EIB European Investment Bank ERDF European Bank for Reconstruction and Development ERTMS European Rail Traffic Management System ESIF European Structural and Investment Funds eTEN Trans-European Telecommunications Networks INEA Innovation and Networks Executive Agency MFF Multiannual Financial Framework PCIs Projects of Common Interest RES Renewables SESAR Single European Sky ATM Research TEN Trans-European Networks TEN-E Trans-European Energy Networks TEN-T Trans-European Transport Network



1Introduction: Political and legal context "State-of-the-art connectivity of digital, energy and transport infrastructure is key to Europe’s territorial, social, and economic cohesion." 1.1Scope and context The Connecting Europe Facility (CEF) is a common, centrally-managed funding programme for transport, energy and telecommunications infrastructures, with an available budget of EUR 30.4 billion for the years 2014 to 2020. It was established as part of the Europe 2020 strategy for smart, sustainable and inclusive growth and the EU’s ‘20-20-20’ objectives in the area of energy and climate policy. On 2 May 2018, the European Commission adopted its proposals for a new Multiannual Financial Framework (MFF) for 2021-2027. Under these proposals, the Connecting Europe Facility programme will have a budget of EUR 42,265,000,000 over this period. This impact assessment report reflects the decisions of the MFF proposals and focuses on the changes and policy choices which are specific to this instrument. Based on the respective sectoral guidelines , CEF supports the development of trans-European networks (TEN) , with the objective of improving cohesion in the internal market and the EU’s competitiveness in the global market. The general objective of CEF is to foster implementation of projects contributing to the completion of the TEN. This is reflected in the priorities laid down in the guidelines for the sectors of transport and energy. CEF addresses market failures, focuses on projects of high European added value and helps leverage further investment from the private sector. As the scope of intervention in the digital component of CEF has changed significantly, it is necessary to repeal the sectoral guidelines for telecommunications and incorporate the provisions defining and prioritising projects of common interest in the area of digital connectivity - which would have been the substance of the revised digital guidelines - into the CEF Regulation. This was done in order ensure a coherent and comprehensive view of its scope, of the funding instruments and priorities proposed for the next multi-annual financial framework, and, conversely, to avoid overlaps and contradictory legislation. As outlined in the Communication on the budget for Europe 2020 , the Commission considered that "while the market can and should deliver the bulk of the necessary investments, there is a need to address market failure – to fill persistent gaps, remove bottlenecks and ensure adequate cross-border connections. However, experience shows that national budgets will never give sufficiently high priority to multi-country, cross-border investments to equip the Single Market with the infrastructure it needs. This is one more example of the added value of the EU budget. It can secure funding for the pan-European projects that connect the centre and the periphery to the benefit of all. Therefore, the Commission has decided to propose the creation of a Connecting Europe Facility to accelerate the infrastructure development that the EU needs.” Figure 1: Needs, priorities and CEF support

Market failures CEF ESIF Market and national financing

EFSI Priorities defined in the 3 sectorial guidelines A mid-term evaluation of the current programme was carried out in 2017. It indicated that CEF is overall on track in its contribution to meeting the policy objectives of the TENs and is effective in supporting projects with high EU added value. CEF triggered the development of projects that Member States had failed to enable with their own financial means. In some areas however, the effectiveness could still be improved. This would require a number of improvements in the financing of the TENs and, where appropriate the European Structural and Investment Funds (ESIF), with a view to preparing a successor investment instrument post-2020. The financing framework of the TENs must take into account the impact of new initiatives such as the European Fund for Strategic Investments (EFSI) as well as the creation of the single guarantee fund “Invest EU”. The framework must also fully align with the current policy priorities of the Juncker Commission as well as long-term objectives such as the Paris Agreement commitments with more emphasis on digitalization, decarbonisation, (cyber)security and green industrial leadership. In this context, an extension of scope to integrate renewables into cross-border cooperation involving at least two Member States is considered as an additional element in the CEF-energy window. This extension is designed to make use of the cost-effective renewable energy potential across the EU by stimulating regional/cross-border cooperation, sector integration and enabling the EU to meet its collective 2030 target. The scope of intervention of CEF Digital is changed in the same context, in order to ensure a closer alignment with the Union's strategic connectivity objectives, and a stronger focus on the core overall objective of the programme, allowing it to deliver on the infrastructure necessary for the digital transformation of the economy . Moreover, in alignment with the cross cutting objectives of the new MFF, there is a need to explore ways to incorporate in the future programme simplification, flexibility, synergies and coherence with other EU programmes. Of paramount importance is the need to reflect upon the considerations put forward in the Commission's reflection paper on the EU's finances which highlights CEF as a directly-managed EU programme supporting major EU infrastructures with high EU added value, contributing in making the EU visible and recognisable in the daily lives of its citizens. The paper also invites reflection on improvements to strengthen the performance and impact of the programme, in particular by avoiding overlaps, combining instruments and ensuring complementarity and simplification. In this spirit, the design of the successor CEF programme has to well address any potential overlaps and maximise synergies with the different EU instruments and programmes such as EFSI/InvestEU, the European Structural and Investment Funds (ESIF), Horizon Europe and the envisaged Digital Europe Programme. The European Commission jointly with the Estonian Presidency contributed to this reflection process by holding in the margins of the Informal Council in Tallinn in November 2017 a joint session of transport and energy ministers, looking into the achievements and the future of CEF as well as its priorities post-2020. The session highlighted the need to build in the next MFF on the success of CEF as the key tool for promoting infrastructure development and a deeper integration of the EU. The outcome of discussions were reflected in formal Council Conclusions on TEN-T and CEF adopted by unanimity in December 2017, which emphasised the efficient management of the CEF budget and called for the reinforcement of CEF as the strategic EU investment instrument for the realisation of the TENs. While completion of electricity network infrastructure remains the priority to achieve the development of renewables, integrating cross-border cooperation on renewables reflects the more Europeanized approach adopted as part of the Clean Energy for all Europeans Package with a collective responsibility to reach at least 27 % renewables in 2030, the changed policy context and the amendments from both legislators calling on the Commission to enable and support regional cooperation in the currently negotiated review of the Renewables Directive (for more details cf. chapter 3.3. Annex 3). It will also contribute to making better use of synergies, align with the development of the meshed grid under current energy priority corridors and facilitate sector coupling e.g. between power and mobility. A first class digital infrastructure is also a clear political priority, not only for the Commission but also for many Member States. In the wake of the Tallinn Digital Summit of 29 September 2017, the European Council has, in its conclusions of the October 2017 meeting, formally declared that “to successfully build a Digital Europe, the EU needs in particular […] a first rate infrastructure and communications network: this requires cooperation at the EU level, inter alia with the aim of achieving world-class very high-speed fixed and mobile networks (5G) all across the EU […]” (EUCO 14/17). In its report on the next MFF: "Preparing the Parliament’s position on the MFF post-2020", the European Parliament: "supports reinforcing the Connecting Europe Facility […]; […] Stresses that an updated and more effective CEF programme should cover all modes of transport, including road and rail infrastructure, as well as inland waterways; considers that is should prioritise greater links between comprehensive networks and modes of transport that contribute to reducing CO2 emissions, and focus on interconnections and the completion of the network in peripheral areas; reiterates the importance of enhancing interoperability through the European Railway Traffic Management System and enabling the full use of the Single European Sky initiative; calls for the completion of the European digital air traffic management system; […] stresses that CEF Telecom should continue to support Digital Service Infrastructures and high-speed broadband networks by enabling their accessibility, including in remote regions and rural areas, and by improving digital literacy, interconnectivity and interoperability; […] calls […] for continuous support for investments ensuring the diversification of energy sources and routes, increasing energy security and energy independence, and enhancing energy efficiency and the use of renewable energy, including by CEF Energy;" With regards to complementarity with related programmes to CEF, the Parliament called for the Commission to implement and further facilitate greater synergies and complementarities between the different EU funds, including cohesion policy, FP9 and EFSI. The Parliament also asked for a thorough climate mainstreaming and underlined that the EU should not finance projects and investments that are contrary to the achievement of EU climate goals.

On the basis of the CEF mid-term evaluation and stakeholder consultation including the Open Public Consultation on EU funds in the area of strategic infrastructure, the envisaged scope of this impact assessment relates to identifying the main challenges to be addressed by the future CEF programme 2021-2027 with a focus on the key issue-areas requiring improvement compared to the current CEF programme. Stemming from this impact assessment will be the overall general and specific objectives of the future programme and a programme structure and associated delivery mechanisms that reinforce CEF for the purpose of the achievement of the EU policy objectives in the sectors concerned. This impact assessment satisfies the requirements of the Financial Regulation in respect of preparing an ex-ante evaluation. 1.2Lessons learned from previous programmes Mid-Term Evaluation of CEF In accordance with the CEF Regulation, the Commission, in cooperation with the Member States and the beneficiaries concerned, was required to present a report on the mid-term evaluation of the CEF to the European Parliament and the Council. This report and its accompanying Commission staff working document (SWD) was adopted by the Commission on 13 February 2018. The evaluation assessed the programme’s overall performance in light of its general and sectoral objectives, as well as compared to what has been achieved as a result of national or EU action. In line with the Commission’s Better Regulation Guidelines, the evaluation was carried out according to five criteria: effectiveness, efficiency, relevance, coherence and EU added value. Sector CEF Budget CEF Funding (Grants) Total CEF Budget

(Financial programming Draft Budget 2019) out of which total CEF Budget allocated to grants Total reserved by an annual work programme or an amended multi-annual work programme

(% of CEF budget allocated to grant) out of which total Actual CEF Funding for the awarded grants

(% of CEF budget allocated to grant) Total effective budgetary commitment for grants

(% Actual CEF funding) Total effective payment for grants

(% Actual CEF funding) Transport 24.138 23.549 23,540 (100%) 22,293 (95%) 8,877 (40%) 3,608 (16%) Energy 4.752 4.574 3,406 (74%) 2,461 (58%) 1,201 (49%) 259 (11%) Telecom 1.043 579 325 (56%) 176 (30%) 155 (88%) 71 (40%) Synergy 40 22 (55%) 22 (100%) 8 (40%) Total 29.933 28.724 27,311 (95%) 24,952 (87%) 10,255 (41%) 3,946 (16%) The grants selected under the Multi-annual Work Programmes for CEF Transport and CEF Energy are managed through annual instalments over the period 2014-2020. The legal commitment is broken down into one or several budgetary commitments depending on the progress of the action. The total budgetary commitment is therefore lower than the total amount allocated via grant agreements (i.e. the total of the budgetary commitment represents 41% of the total amount of the grants allocated). So far, 16% of the total amount allocated to the selected grants has been paid through pre-financings and interim payment accounts. This information is broken down per sector in the above table. Overall, the conclusions of the Mid-Term Evaluation of CEF were as follows: "The evaluation illustrated that after the first three and a half years of CEF implementation, the programme is on track, although it is much too early to measure results given that the programme implementation is still at an early stage. Moreover, the performance framework provided in the Regulation has proven lacking well defined or robust indicators. With this reservation in mind, the evaluation showed that: ØCEF is an effective and targeted instrument for investment in trans-European infrastructure (TEN) in transport, energy and the digital sector. Since 2014, it has invested EUR 25 billion, which has resulted in approximately EUR 50 billion of overall infrastructure investment in the EU. CEF contributes to the Commission’s priorities on jobs, growth and investment, the internal market, Energy Union and climate, and the Digital Single Market. In so doing, it is strengthening the competitiveness of the EU economy.

ØCEF brings high European added value for all Member States by supporting connectivity projects with a cross-border dimension. Most funding is awarded to projects bridging missing links and removing bottlenecks, with the aim of ensuring the proper functioning of the EU internal market and territorial cohesion among Member States in the transport, energy and digital sectors. Projects in energy also provide security of supply and are key for the cost-effective decarbonisation of the economy. CEF is also instrumental in the deployment of EU-wide new systems in traffic management and safety (e.g. SESAR for aviation, ERTMS for railways), high-performance electricity lines and smart grids essential for the rapid intake of renewable non-carbon energy sources, and in the roll-out of broadband and interconnected Digital Services (such as Open Data, e-Health, e-Procurement, eIdentification and eSignature). ØThe direct management of CEF grants has proved very efficient, with a strong project pipeline and a competitive selection process, a focus on EU policy objectives, coordinated implementation and the full involvement of Member States. The INEA executive agency has a very good track record on the financial management of CEF and on optimising the budget, particularly thanks to its flexibility in quickly re-directing money unspent by certain actions to financing new ones. ØFor the first time, a share of the cohesion budget (EUR 11.3 billion for transport) was executed under direct management within the CEF framework. 100 % of the envelope was allocated during the first half of the programme period, almost exclusively on sustainable transport modes. Targeted technical assistance, lower administrative costs for Member States, clear funding priorities and a solid project pipeline stemming from the continuity of projects and studies formerly supported by the TEN-T Programme or by the Cohesion Policy instruments contributed to the fast allocation of funds. ØCEF has continued to use and develop innovative financial instruments. However, their deployment has been limited due to the new possibilities offered by EFSI. The use of the CEF financial instruments is expected to take up during the second half of the programme when complementarity between the CEF specific financial instruments and EFSI will have been ensured. The Connecting Europe Broadband Fund, building on contributions from CEF and EFSI, is expected to become operational in 2018 and fund the rollout of very high capacity networks in underserved areas, with an important leverage effect. ØMoreover, a very positive first experience of blending grants with financial instruments was carried out in 2017 in transport, with EUR 2.2 billion funding requested for a call with an indicative budget of EUR 1 billion, enabling the use of grants to maximise the leverage of private or public funds. ØCEF spending in transport and energy is a major contributor to the EU’s target of at least 20 % of the total EU budget to be dedicated to climate action-related spending. In the area of energy more than 50% of the CEF energy budget was allocated to electricity transmission and smart grids therefore contributing to the energy transition. ØIn the Telecom sector, the dual focus of CEF on digital cross border services of public interest and communication and computing infrastructure has shown that the programme has an important impact on achieving the EU digital single market goals, enabling citizens and businesses to access high quality digital services across Europe. It has helped develop and implement common policies to address societal challenges including the digital transformation of healthcare, cybersecurity and digitisation of governments. However, due to the limited resources CEF Telecom could only support the very first steps towards a full cross border digital infrastructure in areas of public interest. Given the limited envelope allocated for broadband under CEF vis-à-vis the size of the investment gap, it was necessary to implement it in an innovative way and to aim at maximising leverage in order to ensure effectiveness. However, due to the complex set up of the dedicated financial instruments, the investments on the ground will only materialise at a late stage in the implementation of the programme. ØCEF has also tested cross-sectoral synergies, but has been limited by constraints in the current legal/budgetary framework. The sectoral policy guidelines and the CEF instrument would need to be made more flexible to facilitate synergies and be more responsive to new technological developments and priorities such as digitalisation, while accelerating decarbonisation and addressing common societal challenges such as cybersecurity. ØThe completion of the TENs defined in the EU policy priorities will still require massive investments, part of which will depend on continued EU support. The size of CEF currently makes it possible to address only some of the identified market failures in all three sectors. Therefore, potential exists for unlocking further public and private investment if additional EU budget was made available to address market failures." In addition, concerning the delivery, some additional points of improvement were identified regarding the reduction of administrative requirements for small grants, and a certain lack of flexibility over time as regards the priorities and scope of intervention, for instance to accommodate new policy priorities or to reflect technological evolutions.

Furthermore, various lessons learnt, which - due to the timing of the operational launch of the instruments - could not be incorporated in the Mid-Term Evaluation. They have nevertheless been reflected in the proposals for the new CEF Digital, in particular in the change of scope and in the implementation mechanisms. The lack of adequate funding, as well as the limitation to financial instruments at the onset of the implementation of the current CEF, where clear impediments to CEF having a strong impact in the area of broadband. Most importantly, the experience of setting up the financial instrument in the field of broadband, as well as the monitoring of the broadband investments supported by other EU programmes, clearly underlined that there are gaps and missing links in the types of projects supported, which constitute barriers to the completion of the Digital Single Market. These gaps and missing links, as well as the proposed refocus, are further described in section 2.1 below. Finally, new strategic objectives in the digital area have been defined in the Gigabit Society Strategy Communication, which have to be reflected in the new scope of CEF Digital, now focusing only on infrastructure. 1.3Results from the consultation activities OPC for the CEF Mid Term Evaluation and OPC on strategic infrastructure in the next MFF Overall, stakeholders reiterated their support for the CEF programme and highlighted the key role it plays in contributing to the EU’s objectives in areas such as the completion of the TENs, promoting economic growth and jobs across the EU. The transition to a low carbon system was named as the most important challenge for the future CEF in both the energy and transport areas by respectively 94 and 98 % of respondents. Stakeholders encouraged additional flexibilities in the new programme to encourage further synergies across the three sectors. Respondents in the transport sector stressed the importance of CEF in facilitating cross-border projects as well as removing bottlenecks and missing links. Stakeholders called for an increased budget in order to accelerate the decarbonisation and digitalisation of the transport sector while increasing connectivity across the EU. The energy-related responses to a very large extent reaffirmed the important contribution of CEF towards the completion of the trans-European energy infrastructure network and by extension towards the fulfilment of the Energy Union targets. The digital respondents highlight the central role of broadband connectivity as a catalyst for the economic and social development across society and sectors. In order to increase competitiveness of the EU, they call for increased investments into connectivity and 5G, which would help improve economic performance, generate jobs in the EU and promote a qualitative leap in the transition to a Digital Society. Stakeholders at the same time provided useful feedback on the areas that require further improvement or development and this is detailed in the consultation report in Annex 2. Specific consultations concerning renewable energy The extension of scope towards cross-border projects in the field of renewable energy is supported and justified by relevant findings of the REFIT-evaluation of the RES Directive of 2016. and the outcome of the specific expert stakeholder workshop on the extension to cross-border renewables cooperation which took place on 5th March 2018 in Brussels where stakeholders present (including 12 Member State governments) overwhelmingly felt that EU action (including financial support) was necessary in order to overcome the Member State's hesitance to engage in cross-border cooperation and/or overcoming associated barriers (for more details see annex 3) Specific consultations concerning synergies between sectors To reinforce synergies between the three sectors specific expert workshops were organised. A workshop on the Internet of Energy was held on 26 February 2018 and on 30 January 2018 a workshop on Green-ICT. 2The Objectives 2.1Challenges for the programmes of the next MFF

Key features of the ongoing programme and the Baseline CEF is the main funding tool contributing to the objectives set by the Treaty as regards the establishment of the TENs and which have been identified in the respective sectorial guidelines. ESIF, the EIB, including through EFSI, and the Member States alone, or in combination, make considerable contributions to the achievement of the objectives of the TENs; however, they tend to focus on national and regional areas as opposed to the European dimension. One additional challenge is that TENs are complex structures developed in a cross-border context with associated regulatory hurdles to be addressed. There are many EU actions that support the achievement of the TENs objectives. The unique features of CEF however, such as direct management (including of the CEF Cohesion envelope for transport); the "use it or lose it" principle; clear prioritisation and deadlines; focus on cross-border and low-carbon infrastructures; flexibility to re-orientate unused funds; capacity to develop synergies; capacity to blend with private finance; targeted technical assistance and the full involvement of the Member States through the respective Committees allow CEF to address these particularly complex challenges. CEF is the only instrument of this scale at the EU level designed to specifically tackle the market failures due to the cross-border nature. As highlighted in the Reflection Paper on the Future of EU Finances, CEF is steering investments where the EU added-value is highest: on projects with a cross-border impact and European-wide interoperable systems and services. Given the persistence of market failures for these types of projects as well as the significant investment needs that remain, the continuity of the instrument is very relevant and indispensable after 2020 for the achievement of the TENs. In addition, thanks to its efficient modus operandi and its capacity to attract private finance, CEF is also a major contributor to the Investment Plan for Europe and EU policy objectives of the Juncker Commission. An unchanged policy (the Baseline), would see the continuation of the current CEF approach in the next financial perspective, carrying on in the post-2020 period with the same scope, delivery methods and budget (EUR 30.4 billion). Investments in the TEN-T core transport network, the integration of the internal energy market, security of energy supply, the transition to low-carbon and climate resilient economy and the digital single market as currently possible would continue. However, without further refinement of CEF, the main challenges identified in this impact assessment could not be addressed. For example, the possibility to address the increased investment challenge of the existing and new emerging priorities, innovative projects and exploiting synergies and sector coupling would be very limited, while overlaps with other EU funds/programmes would persist. The baseline scenario for CEF Digital would amount to quantitative and qualitative shortcomings, both risking to jeopardise the completion of the Digital Single Market. In terms of budget vis-à-vis the estimated investment gap, assuming that the same level of public funding is dedicated to broadband investment through all the EU programs, including CEF, ESIF, and InvestEU, and taking into account private investment predictions, it is estimated that between 50 and 70 million households across the EU would remain unconnected to high-capacity networks. More importantly, in the absence of a change of scope of CEF Digital, digital projects of strategic importance for EU's competitiveness would risk remaining unrealised, translating into significant untapped potential in the Digital Single Market. Finally, in terms of the overall structure of the CEF programme, failure to bring CEF digital budget to a more comparable level than that of the two other sectors would mean failure to reflect the importance of digitalising the European economy and, in particular, the other two sectors of CEF. With respect to the qualitative shortcomings of CEF Telecom, and to the proposed change of scope of CEF Digital, a review of the support for broadband by instruments in the current programming period revealed that several types of digital projects of strategic importance are underfunded or overlooked. Seamless connectivity networks, including cross-border links and international connectivity networks have clearly been absent under the existing EU schemes, including ESIF investments, since it was decided that INTERREG 2014-2020 would not invest in digital networks and most other Operational Programmes are based on (Member States') national core-to-periphery models. The deployment of 5G corridors, by definition cross-border, would be clearly hampered if broadband support would continue under the same conditions as the current ones. Moreover, various areas throughout the EU would remain uncovered, unless grant support is extended. The experience of setting up the financial instrument dedicated to broadband confirmed the importance of financial instruments in generating leverage for broadband investments and dealing with problems of access to finance; however, it also underlines the difficulty of steering private investments into market failure areas, due to a mismatch between risks and expected returns. While in such cases, a low intensity grant, possibly blended with a financial instrument, is sufficient to render a deployment commercially viable, it is necessary to be able to provide such grant in order to ensure that the project is implemented and that it generates a comprehensive coverage of the area in question. In other words, a grant component is needed to ensure a stronger policy steer of the intervention. The main challenges and problems to be addressed by the future programme The findings of the open public consultation on the future CEF programme and the CEF mid-term evaluation show that there is scope to build on the momentum created with the positive implementation of CEF in the period 2014-20. Further aligning CEF with the current political priorities of the Commission, in particular digitalisation and decarbonisation, can actually contribute to a strengthening of CEF delivery as more areas for synergy may emerge. The incorporation of support for cross-border renewables planning and deployment can be complementary to the development of the meshed grid (=integrated development of electricity transmission and offshore sources infrastructure (in the North Seas and the Baltic Sea) which is a complex endeavour. As with all programmes of the MFF, the challenge to increase flexibility, coherence and synergies, simplification and focus on performance needs to be addressed. In considering how CEF could be improved, the following main challenges have been identified: First challenge: completion of Trans-European Networks in transport, energy and digital area

Europe's sustainable growth and competitiveness depend on efficient connectivity both within and to the rest of the world. CEF is a key EU funding tool contributing to the achievement of the objectives set by the Treaty as regards the establishment and development of the Trans-European Networks. Other EU instruments complement this, as the investment needs go far beyond interconnectors with the transition to a decarbonised system having in particular a very strong decentralised dimension (see also second challenge. Achieving well-interconnected, interoperable and efficiently managed transport, energy and digital infrastructures in Europe requires the ability to plan and invest in a coordinated long-term approach at EU level. In the post-2020 financial period, the continued development of high-performance infrastructure connecting and integrating the Union and all its regions, in the transport, energy and digital sectors will be crucial for strengthening the social, economic and territorial cohesion of the Union and contributing to the creation of a single European transport area, an EU Energy Union, and the Digital Single Market (DSM). As illustrated in the table below, recent studies have estimated significant investment needs required in order to fulfil the objectives of the TENs. Table 2: Estimated investment needs related to the Trans-European Networks - 2021-2030 (EUR million) Investment needs TEN - Transport 550,000- 1,500,000 TEN - Energy 178,670 TEN - Digital 500,000 For transport, the figures cover cross-border sections, bottlenecks and missing links on the TEN-T core network, the large scale deployment of traffic management systems such as SESAR and ERTMS and major new priorities such as alternative fuels, digitalisation, and overall safety and security. Taking into account the TEN-T Comprehensive Network and urban transport investment needs, this figure would amount to EUR 1.5 trillion. Over the period 2021-2027, it is estimated that the total investments in the area covered by the new programme (core network, parts of the comprehensive networks and additional investments in decarbonisation and digitalisation of transport) would be close to EUR 1 trillion, while the new instrument would only target approx. 10% of the total, in order to focus the intervention on where it brings clear EU added-value. In addition, important support would also be needed through ESIF in order to match the investment needs, notably as regards urban and territorial mobility. For energy, the figures cover infrastructure projects with cross-border relevance in electricity, gas and smart grids at transmission level. The detailed assessment of the investment needs in each of the TEN-E priority corridors and areas (factoring in the historical data on the average co-funding rate required within corridor) indicates that out of EUR 11 billion EU support needed for TEN-E (2021-2027), more than 85% would be required for electricity PCIs. It is expected that smart grid PCI projects alone will require EUR 2bn in EU support in the next decade. This indeed confirms that a step change in investments will be required in reinforcing the electricity grid (for higher absorption of renewable generation), in electricity storages and grid smartening and therefore it is expected that projects' technological innovation will become even more important driver behind the grant decisions. It should be noted that the investment needs in the overall energy sector associated with the transition to a low carbon system are much higher than those reflected under the scope of TEN-energy which focuses on transmission infrastructure with cross-border relevance. Significant investments will be required at decentralised and local level (including for smart grids), in energy efficiency, renewables etc. For the digital sector, the figure illustrates investment needs to reach EU's connectivity targets, i.e. gigabit connectivity for all main socio-economic drivers, high performance 5G connectivity –in particular uninterrupted 5G coverage of all major terrestrial paths – and access to at least 100Mbps for all European households. The combined investment needed to meet the Gigabit Society connectivity objectives by 2025 has been estimated at EUR 500 billion, for which an additional EUR 155 billion is required over and above a simple continuation of the trend of current network investment and modernisation efforts. An improved regulatory environment, as well as an increased exploitation of synergies, are expected to reduce this investment gap. It should be noted indeed that important synergies can be achieved between the deployment of 5G and of other (mostly fixed) connectivity networks. A dense 5G network reaching all urban areas and major transport paths – based on backhaul fibre to the 5G cells - will also benefit the deployment of wider networks for connectivity of both households and socio-economic drivers located in less densely populated area, e.g. by bringing the fibre network closer to homes as domestic and enterprises’ needs and demand evolve. Nevertheless, a significant infrastructure investment gap to reach the EU's objectives is expected to persist after 2020, spread throughout the entire territory of the EU. Given the size of the challenge, EU support must be complementary, targeted and efficient, making the most of limited public resources. It is important to note that with regard to digital infrastructure, all projects supported have cross-border characteristics and cross-border effects. Notably, the current legal base for CEF Telecom does not distinguish between cross-border projects and projects implemented entirely within one Member State. Due to the architecture and way of functioning of Internet connectivity, any local deployment is part of a trans-European digital network and has cross-border impact. Moreover, by addressing local connectivity problems at the EU level, in a coordinated and timely manner, the scale and network effects are maximised. Nevertheless, in view of the limited resources available and in order to maintain the key features of the CEF programme, it is important to prioritise digital investments on the projects that are considered to have most impact on the Digital Single Market and the highest EU benefit. “Local is global": the current experience of the Wifi4EU, of an otherwise purely local character as regards physical location, should demonstrate, thanks to its foreseen roaming functionality, the mechanism to build a network effect at EU level, underpinning the digital economy. Similar initiatives can be replicated for socio-economic drivers, which are local but underpin e-health, e-government, and enhanced digital skills. By their location and function, they should be at the forefront of digital connectivity, driving the digitalisation of public services and producing important socio-economic spillovers. Acting at EU level, due to scale and timing produces an effect which could not be achieved at national or regional level and, moreover, avoids increasing territorial, social and economic discrepancies associated with digital divides. The revised scope CEF Digital programme is then aimed at ensuring a more effective intervention in the sense of a stronger alignment with EU's strategic connectivity objectives, including by selecting priority areas of intervention that are currently not covered by public funding programs or that are best suited to be covered under CEF. CEF has indeed a proven track record concerning the timely delivery of cross-border deployments or of projects with strong cross-border effects, as well as the support to projects that can be delivered with only small grant components, which also maximise private participation to projects. This prioritisation, along with further eligibility criteria making sure that the risk of market distortion is minimised, further described in Annex 4, are reflected in the new CEF Regulation. Finally, it is of utmost importance that the reinforced intervention in the area of digital connectivity is reflected also in the allocated budget, in order to enable its effectiveness. Compared to the overall investment needs, CEF will focus on a limited part relating to public goods of European dimension that would not be realised at national, regional or local level without EU support. More specifically, the programme will steer public and private finance towards EU policy objectives, enabling action where the costs are borne at national/local level and the benefits are tangible at European scale, and will accelerate the shift to a low-carbon and digital economy, while contributing to economic, social and territorial cohesion.

Without this targeted support, the possibility to achieve the EU policy objectives to complete Trans-European Networks in transport, energy and digital area would be limited. Significant delays would occur and the completion of strategic projects would be at risk. Projects already started would slow down or stall, leading to a partial loss of benefits from previous investment and EU support. This would notably be the case for the deployment of smart systems such as SESAR and ERTMS and for major transport projects as illustrated in the recent Communication "A new, modern Multiannual Financial Framework for a European Union that delivers efficiently on its priorities post-2020": "Other examples of the negative effects of delays in agreeing a new financial framework include Rail Baltica. The project will build a crucial railway link into the Baltic States and should be completed by 2025/2027. The project must be able to launch the major procurements it needs for construction in 2021. This is crucial for the completion of a project that will help connect five million people in the Baltic States to the rest of Europe. The high-speed rail link will cater at the same time for freight flows all the way from Finland to Germany, the Benelux and the Adriatic. The Brenner base tunnel is planned to be completed by 2027, with the rail engineering works due to start under the next MFF. It is a crucial project to shift half of the 2.2 million trucks of the Brenner motorway to rail. This will cut down on pollution in the precious valleys between Munich-Innsbruck and Verona. The Fehmarn Belt between Denmark and Germany, the Evora-Merida railway link that will finally connect Lisbon and Madrid, the Lyon-Torino base tunnel that will connect the high-speed railway networks of France and Italy are also all due to be completed by the end of the next Multiannual Financial Framework. " A lack of EU support would also put at risk major energy cross-border interconnections, including those necessary to reach the electricity interconnection targets, deployment of electricity interconnectors which are crucial for integrating markets, enabling more renewables in the system and benefiting from their different demand and renewable supply portfolio, off-shore wind networks and smart grids, de-synchronisation of the Baltic electricity grid, integrating all countries into a liquid and competitive energy markets. The connectivity targets as set in the Gigabit society, which are a pre-condition for a functional Digital Single Market, would also not be reached without further targeted support. In particular those projects with the strongest cross-border characteristics and with the highest expected impact on the Digital Single Market, such as the deployment of 5G corridors and the digitalisation of energy and transport networks, would be impacted. The viability of the anticipated next generation digital services, such as Internet of Things services and applications that are expected to bring significant benefits across various sectors and for society as a whole, will require uninterrupted cross-border coverage with 5G networks, in particular in view of allowing users and objects to remain connected while on the move. However, the cost sharing scenarios for 5G deployment across these sectors remain unclear, and the perceived risks of commercial deployment in some key areas are very high. Road corridors and train connections are expected to be key areas for the first phase of new applications in the field of connected mobility and therefore constitute vital cross-border projects for funding under this Programme. The aim in to deliver "5G corridors", meaning full coverage with 5G systems of transport path, road or railway, particular 5G systems, enabling the uninterrupted provision of synergy digital services such as connected and automated mobility or similar smart mobility services for railways. At a more general level, the absence of a realignment of interventions for all programmes supporting broadband deployment, including ESIF and InvestEU, would lead to a situation where many areas throughout the EU would remain unconnected, with untapped potential for the digital economy but also for smart public services. Overall, a reduced CEF budget would require policy choices between the completion of the TEN networks, the possibility to better address their evolution in relation with the energy and digital transition, and to build –up significant synergies on emerging topics as illustrated in the following second and third challenges. Second challenge: the energy transition and technological developments in the transport, energy and digital sectors While CEF makes a strong contribution to climate change actions and decarbonisation of infrastructures, this is insufficient in view of a growing need to invest directly into rolling out of innovative technologies, notably in mobile equipment, for the decarbonisation of the land and maritime transport in line with Europe’s transition to low-emission and climate resilient mobility and EU commitments entered in the scope of the Paris Agreement. This requires the roll-out of infrastructure for alternative fuels, as well as enhancing climate resilience during planning, design, construction and operation of infrastructures. The challenge of transitioning to a low carbon and climate resilient economy was the highest ranked issue in the public consultation for both the transport and the energy part (with 98% and 94 % of respondents respectively).

The Alternative Fuels Infrastructure Directive addresses the provision of common standards on the internal market, the appropriate availability of infrastructure and consumer information on the compatibility of fuels and vehicles. Based on this Directive, Member States were requested to design policy frameworks for rolling-out publicly available electric recharging points and natural gas filling stations, and optionally hydrogen filling stations. In order to achieve mass acceptance and deployment of electric vehicles, charging and maintenance infrastructure needs to become widely available throughout Europe. While in the current CEF framework, a target of 5% of the CEF Transport budget is dedicated to innovation in low carbon transport, and proved successful in starting to deploy such infrastructures this will have to be scaled up substantially in order to meet future needs. For instance, the Commission's proposal for post-2020 CO2 targets for cars and vans implies that a substantial share of the vehicle fleet in 2030 will be electric (plugin hybrid or full electric). Similarly, in light of technological advancements, digitalisation and innovation requires intensifying support. In the energy sector, the recent Communication on strengthening Europe's energy network recognises that electricity, where renewables will constitute half of the electricity generation by 2030, will increasingly be driving the decarbonisation of sectors so far dominated by fossil fuels, such as transport, industry and heating and cooling. Therefore the focus will need to be on the reinforcement of the electricity transmission and distribution grids, digitalisation and smartening of the grids and deployment of new infrastructure solutions, particularly in the electricity storage area, and the impact of self-consumption." It is important to recognise that innovation is already one of the three main drivers (externalities) which can justify CEF energy grants for works (within the framework of the TEN-E guidelines). To date the energy envelope of CEF enabled several important highly innovative projects such as SincroGrid, Biscay Bay HVDC connection, gas deodorisation technology (these three totalling to EUR 0.629 billion, i.e. more than 25% of the overall budget allocated to date). It is, however, clear that in view of the investment challenge and the transformational (hence increasingly innovative, first-of-the-kind) character of the planned projects there is insufficient funding in the market alone. Public budget support will be indispensable to facilitate and de-risk the take-up of such innovation in the networks sector and to enable system operators to invest substantially higher volumes than they (both through their balance sheets and their regulated asset bases) are used to, including on sector integration beyond energy. As innovation will be necessary along the full value chain, the complementing enabling instrument for cross-border projects in the field of renewable energy will promote innovation aspects beyond the transmission network. The extension to cover cross-border projects in the field of renewable energy happens against a new political context of more Europeanisation of efforts in this area and the increasing focus on renewables within existing intergovernmental groupings on energy matters. In addition to benefits stemming from a more coordinated approach , there are potential cost savings to be reaped from coordinated grid and RES deployment, reduced overall investment and back up needs as documented in various studies. The EU is entering a new scale in terms of RES electricity deployment (almost 50 % of EU electricity in 2030 will be from RES) and complementing regional transmission network planning with a more regional approach to planning of renewables can further help optimising the energy systems. While renewable electricity costs (particular for wind and photovoltaics) have significantly decreased in the last years and these technologies start becoming competitive, there is a need of tapping the potential of cross-border projects to further decrease production costs (= total generation and grid development costs) and incentivise sector coupling (where the electricity producing sector is developed in an integrated manner with the energy end use sectors such as transport). In the digital sector, the demand for network data will increase exponentially with the advance of the Internet of Things, bringing at the same time major benefits across sectors and across borders. For example, the benefits of the deployment of 5G networks have been estimated at EUR 113 billion per year across for industrial sectors (automotive, health, transport and energy), while the cost sharing scenarios across these sectors remain unclear and the perceived risks of commercial deployments, very high. Other examples of exponential need for data concern the smart home market, which is expected to grow at a compound annual rate of 57% in the next five years, or the healthcare sector, where major savings can be realised - but only to the extent that high capacity connectivity covers not only major hospitals, but also smaller medical centres and homes of patients living with chronical conditions. Beyond this, measures need to be employed to control both the amount and the type of energy required to fuel that demand. In particular, it will be necessary to support appropriate solutions for the growing number of data centres migrating from single enterprise/institution to co-location and cloud data centres, which will operate through a steadily increasing number of sites across different countries. In addition, future trends, including the advance of the Internet of Things (IoT) may support the development of small and distributed data centres with many of the features of Cloud data centres.



Third challenge: Better coordination with other EU programmes and better exploitation of synergies within CEF Transport, energy and telecommunications infrastructure is supported to various degrees by a number of EU financial programmes and instruments, including CEF, ESIF, Horizon 2020 and EFSI. CEF is for the most part complementary with these other EU financial interventions; however, this complementarity bears the risk of overlap with implications to TENs policy and overall EU budget. Consequently, for the new CEF programme, the distinction from other EU financing programmes is a key requirement in order to maintain and promote clear objectives of the programme, avoid overlaps and optimise budgetary resources. Complementarity with ESIF The European structural and investment funds comprise the European regional development fund (ERDF), the European social fund (ESF), the Cohesion fund, the European agricultural fund for rural development (EAFRD) and the European maritime and fisheries fund (EMFF). The current ESIF mainly focus on five areas: research and innovation, digital technologies, supporting the low-carbon economy, sustainable management of natural resources and small businesses. Both the Cohesion fund and the ERDF fund actions in the transport, energy and digital sectors with the ERDF aiming to promote balanced development in the different regions of the EU and the Cohesion Fund funding transport and environment projects in countries where the gross national income (GNI) per inhabitant is less than 90% of the EU average. All of these funds are managed by the EU countries themselves, by means of partnership agreements.

Building on the first experience of directly managing a EUR 11.3 billion CEF envelope from the Cohesion fund for transport, the challenge is to better delineate the scope of both instruments in order to render them more complementary. Investments on the TEN-T Network are currently supported by CEF, the Cohesion Fund and ERDF. The overlap between these instruments in the field of transport is limited by the narrower eligibility perimeter of CEF, in particular by its focus on railways and inland waterways while ESIF also covers important investments in the road sector. In addition, CEF resources are concentrated on the core network, while ESIF covers both the core and the comprehensive networks amongst other transport infrastructure. Complementarity is pursued through: -the national programming of regional instrument at the beginning of the period; -the transfer to CEF of a EUR 11 billion share of the Cohesion Fund (entirely allocated, positive feedback from stakeholders and concerned Member States); -the participation of DG REGIO in the CEF selection panels and in project specific task forces. However, as evidenced in the CEF mid-term evaluation, there is significant overlap between CEF and ESIF for railway projects on the core network. In the period 2014-2020, CEF financing for railway projects on the core network is expected to reach approx. 16 billion, while Cohesion Fund and ERDF financing to railway projects on the core network are respectively expected to reach EUR 5.3 billion and EUR 2.5 billion. In certain cases, different sections of the same railway line are financed by different instruments as a result of optimising strategies of Member States and promoters. In addition to the lack of clarity concerning the scope and results of each programme, this situation means that project promoters have to adapt to different administrative frameworks, rules and reporting schemes with all additional costs associated. For example, CEF and ESIF large infrastructure projects have different rules as regards the maturity of projects and application requirements. As regards maturity, major projects under ESIF need as a minimum to have a binding environmental permit to be eligible for support, whereas this is not a requirement for the CEF projects, as maturity is assessed by the Commission during the evaluation process. Furthermore, the application requirements slightly differ, for example, ESIF major projects have to take additionally into account climate change adaptation and mitigation needs. The results of the public consultation show that the stakeholders expect fewer rules and more aligned rules. Hence, the above differences should be reduced where possible and only be maintained where justified by the different management mode. In the case of energy transmission, the areas of intervention for CEF and ESIF have been designed with a view to avoiding overlaps. CEF which stems from the Trans-European Network article of the Treaty concentrates on cross-border relevant transmission assets and energy storages, CO2 transportation as well as transmission grid smartening and pioneering smart grids in interface between transmission and distribution networks. ESIF, in turn, covers gas and electricity transmission which is not identified as PCI (i.e. of national and regional relevance only), investments in distribution networks and in particular in increasing theses networks’ intelligence. The objective is to continue with this clear delineation of responsibilities between CEF and ESIF also recognising that the latter would increasingly focus on accompanying the CEF enabled investments in transmission assets, the backbone and integrating element for the transformation of energy systems, with the decarbonisation-enabling investments in regions and municipalities (such as local RES storages, reinforcement of distribution and distributed renewable generation). For the extension of scope towards cross-border cooperation in renewable energy, the demarcation line will be similar: ESIF will continue to fund RES at urban and regional level, including through bordering regions assistance via INTERREG, whilst the new programme specifically supports two Member States getting together in planning and roll-out. There are currently very limited overlaps in the digital field due to a different scope of intervention and current limitations for broadband under the current CEF, i.e. the low budget and the exclusive use of financial instruments. For the upcoming period, it is foreseen that CEF and ESIF will provide complementary and coherent support to reaching EU's strategic connectivity objectives, while having different focuses, reflected in the eligibility criteria set out in the CEF Regulation. CEF will focus on projects with cross-border and cross-sector dimensions, which would benefit from a coordinated approach at EU level (such as CAD/5G corridors, submarine cables, the Internet of Energy, green-ICT, connectivity for health etc.); on covering socio-economic drivers across the EU with Gigabit connectivity as well as local communities with very high quality wireless connectivity for citizens and visitors; and on supporting broadband rollout in areas where a market failure is observed, but where a limited public intervention can ensure commercial viability. On the other hand, it is expected that ESIF will focus on connecting areas with more severe market failure, where high intensity grants and public promoters remain necessary. In terms of EU's connectivity targets as set out in the Gigabit Society Strategy, CEF will mostly support objectives regarding the main 5G corridors and the connectivity of socio-economic drivers and local communities, while both CEF and ESIF will contribute in a complementary manner - depending on the characteristics of each individual project to be funded in different areas - to reach the objective regarding ubiquitous coverage of households with high capacity broadband networks. CEF is indeed specifically appropriate for pan European/cross-border projects, but also for targeted and efficient interventions, pushing the footprint of private investments to cover as much geography as possible. CEF has indeed a proven record of use of financial instruments and blending, and this experience is useful in ensuring coverage of areas where only a low intensity grant can render a project viable. Ensuring that such resource-efficient interventions are done via CEF also allows ESIF to reach further territories with deeper market failures, such as peripheral or sparsely populated areas. At the same time, the eligibility criteria for CEF interventions will ensure that the supported projects do not lead to market distortion or crowding out private investments, inter alia by taking into account investments by private operators. Such delineation remains therefore, ensuring consistency with state aid principles. Further mechanisms to ensure complementarity will be put in place, at the level of national programming of ESIF and at the selection level. Complementarity with Horizon2020

Horizon 2020 is the EU Research and Innovation programme for 2014 to 2020, implementing the Innovation Union, a Europe 2020 flagship initiative aimed at securing Europe's global competitiveness. The goal is to ensure Europe produces world-class science, removes barriers to innovation and makes it easier for the public and private sectors to work together in delivering innovation. The successor programme (Framework Programme 9) will be known as Horizon Europe. Systemic yet underexploited synergies exist in the area of research and innovation. For example, while the scope of Framework Programmes is focused on supporting research and innovation, including technology development and prototype demonstration, the CEF scales it up to the level of development of new business cases and results in a broader and faster market deployment of innovative technologies, covering market risks, in the three sectors of transport, energy and telecommunications. Options in harnessing complementarity at the level of projects or financing solutions should take into account the market maturity, alignment of timeline and scope of the researched product and the readiness to deploy that product, in order to cover the full life cycle. It is furthermore important to ensure a cross-dissemination of the know-how accumulated on the supported projects and of the results of the overall programmes. Complementarity with Digital Europe Programme The new CEF programme will provide the physical infrastructure for digital services supported by the Digital Europe Programme that is, the infrastructure necessary to support the digital transformation of industry, economy, public administration and society at large. On the other hand, Digital Europe, in general, will provide the service ecosystem that will make the infrastructure rentable and used. For example, Digital Europe will ensure and build the Cybersecurity capacity required for the deployment and functioning of trusted and secure infrastructure, and it will deploy the Services of Public Interests that need a connected society to be used at their full potential. Clear synergies exist and will need to be exploited, by taking into account specific area’s needs and timeline alignment. Therefore, it is clear that, contrary to what has been done in the current MFF, the new CEF will not provide support to the deployment of digital services in areas of public interest, as this will be done within the scope of the new Digital Europe Programme. The envisaged extension of scope is to widen connectivity coverage to reach new stakeholders thus making (cross-border) digital services accessible to an enlarged users’ community. Complementarity with EFSI/"InvestEU" The European Fund for Strategic Investments (EFSI) is an initiative launched jointly by the European Commission and the EIB Group – the European Investment Bank and European Investment Fund –to help overcome the current investment gap in the EU. In order to enhance complementarity with EFSI, the Commission took action to reorient the CEF Debt Instrument to innovative EU pilot programmes, which has yielded some significant room for complementarity, and further work is planned to re-orient the CEF Debt Instrument to support the deployment of alternative fuels and PCIs in third countries. It is expected that financial instruments will play an important role in delivering investments in the transport, energy and digital sectors and that for the next programming period they will be available under the InvestEU programme. Financial instruments are considered particularly relevant to support broadband deployment, complementary with the interventions via grants and blending. Concretely, it is proposed that InvestEU would provide: (i) guarantees for more mainstream broadband investments, with the aim to steer, de-risk, and accelerate investments in the newest technologies; while (ii) special purpose vehicles/thematic instruments, with the aim to overcome persistent issues of access to finance. Contrary to CEF, whose intervention is clearly steered towards market failure areas, InvestEU support is not expected to reach on its own commercially unattractive areas, being rather focused on maximising the commercially viable deployments. As these types of intervention are, however, likely to be covered by the “InvestEU”, this would then eliminate the issue of complementarity between different financial instruments in different programmes.

Consequently, the complementarity between the CEF grants and the InvestEU will relate to: -the intervention logic (CEF grants only where support through financial instruments is not sufficient/possible); -the possibility to use CEF grants blended with InvestEU (or other private financing). Synergies within CEF The mid-term evaluation of CEF illustrated that the potential of CEF as a joint instrument for three sectors has not been fully exploited. Infrastructures such as EV charging stations, energy storage and smart grids often combine and operate at the intersection of transport, energy storage and digital infrastructures, but so far, CEF has not been able to sufficiently address this in an integrated way. The EU's commitments on decarbonisation will imply a growing role for sector coupling, i.e. infrastructure where power generation and storage and end-use sectors are interlinked. One CEF Synergy Call has been launched covering the sectors of transport and energy, yielding limited results. The CEF Transport Call 2018 will focus on horizontal priorities under an overall "digitalisation" umbrella coordinated in close proximity with CEF Digital calls. For 2018, CEF-telecom plans to explore cross-sector activities with CEF-energy and CEF-transport under Cybersecurity applied to the area of cooperative, connected and automated mobility and well as to the Internet of Energy. However, at the time of publication of this Impact Assessment, results were still unknown. Meanwhile, a substantial number of indirect synergies have been identified indicating that they are happening by default, but go uncaptured: -Energy Union and its priorities identified in the recent Communication "Accelerating Clean Energy Innovation: such as alternative fuels, low-carbon solutions and innovative systems (energy-transport-digital-climate-maritime); -Alternative fuels charging infrastructure can involve transport infrastructure, power network, and digital investments aspects. Currently, restrictive selection criteria constitute barriers to invest in such technologies; -Digital Single Market, such as data, infrastructures/processing capabilities, automated driving vehicles, e-mobility, ERTMS (transport-digital-energy); -Regional, such as enhanced interconnectivity at urban nodes (transport-regional) -Research and Innovation, as well as Energy Union, such as urban energy efficiency (transport-digital-energy-research); The challenge for this programme is how best to support projects including through the proposed scope extensions delivering benefits which are in line with policy objectives of more than one CEF sector. 2.2Objectives of the programmes for the next MFF General objective of the programme

The overarching objective of the future CEF is to support the achievement of the EU policy objectives in the transport, energy and digital sector, as regards the trans-European networks, by enabling or accelerating investments into projects of common interest, and to support transnational cooperation on renewables planning and deployment in line with EU long-term climate and sustainable development goals. It will aim at maximising synergies among the sectors covered by the CEF and with the other EU programmes. The future CEF should thus contribute to the EU policy objectives detailed in the table below. Supporting the EU policy objectives beyond 2020 ►Completion of the TEN-T Core Network by 2030 , including the deployment of SESAR and ERTMS, and transition towards clean, competitive and connected mobility , the low-carbon transition through innovative infrastructure including an EU backbone of charging infrastructure by 2025; progress towards the completion of the TEN-T comprehensive network by 2050. ►Completion of the TEN-E priority corridors and thematic areas, in alignment with “Clean Energy for all Europeans objectives, to ensure the functioning of the Union internal energy market, provide security of supply (inter alia through smartening and digitalisation of the infrastructure) and contribute to sustainable development and climate objectives by integrating renewable energy sources and enabling a cost-effective collective target achievement by 2030 ►Achieving the digital connectivity infrastructure of a Gigabit society, as a underlying condition for a functional digital single market, as well as providing the necessary infrastructure to properly support the EU-wide digital transformation of economy and society. Specific objectives of the programme CEF aims to ensure the development of high-performance infrastructure connecting and integrating the Union and all its regions, in the transport, energy and digital sectors while contributing to the energy transition and technological advancement in these sectors. In light of this and on the basis of the challenges previously defined, the general objective of CEF can be translated into specific objectives for each of the three sectors. These specific objectives will be addressed at the level of programme structure and priorities and/or delivery mechanism. Cross-cutting specific objectives ØThe programme should also address the cross-cutting objectives of the MFF for all funding programmes in terms of simplification, flexibility, coherence and focus on performance. These objectives will be taken into account in section 4 (delivery mechanism) and 5 (performance measurement). ØFor synergies between the three sectors, the programme should be sufficiently flexible to support actions at the crossroad of several sectorial objectives and adapt the form and scope of synergies to technological development and market needs. The synergies should in particular result in a more efficient and cost effective implementation of specific projects. Initial synergy areas could include Cooperative, Connected and Automated Mobility (CCAM) along major European Transport paths, smart grids, the use of alternative fuels and a better support for sector coupling in sectors that are end users of energy (such as electrification of transport), as well as an optimised grid for renewables, Internet of Energy and Green-ICT. Actions in one sector which also contribute to policy goals of another sector should also be encouraged and supported. ØAs regards climate mainstreaming, CEF should, in line with the overall approach taken in the next MFF, ensure that it fulfils its potential to accelerate the low carbon and climate resilient transition, and that it does not invest in activities that are incompatible with the related EU policy. Sectorial specific objectives of the programme

ØTrans European Networks - Transport In the transport sector, the specific objectives of the programme are twofold. First, the programme will aim at the development of projects of common interest relating to efficient and interconnected transport networks. This includes the completion of major cross-border projects and the removal of bottlenecks and missing links. Priority will be given to the core network corridors, with the possibility to also support sections of the comprehensive network where justified (cross-border projects). Second, the programme will aim at modernising or upgrading the transport infrastructure in order to allow for smart, sustainable and safe mobility. This includes the deployment of alternative fuel supply facilities, a next phase in the deployment of the digital systems like ERTMS and SESAR, further initiatives relating to cooperative, connected and automated mobility, and actions aiming at improving safety (notably road safety) and security of the transport infrastructure, as well as its resilience to climate change. ØTrans European Networks - Energy Completion of the internal energy market through interconnections Sustainable development through network infrastructure enabling integrating renewable energy sources including through facilitating cross-border planning and deployment of renewables. Security of supply inter alia through smartening and digitalisation of the grids ØTrans European Networks - Digital To contribute in an efficient and targeted way to reach the broadband connectivity targets set in the Gigabit Society Strategy[i.e. Gigabit connectivity for all main socio-economic drivers , High performance 5G connectivity, access to Internet connectivity offering download speed of at least 100 Mbps, upgradable to Gigabit speeds for all European households, including rural ones.]. To contribute to the digitalisation of energy and mobility networks to enable cross-border services in these two areas. To contribute to the resilience and capacity of EU digital networks by addressing international connectivity. 3Programme structure and priorities The table below summarises the main changes in scope for the new CEF programme. Main changes concerning the scope of the programme It is estimated that these changes of scope will not affect more than 10-15% of the programme budgetary allocations. 3.1The core priorities remain focused on the trans-European networks Necessity for EU action On the basis of Article 171 of the TFEU, the Union is empowered to define projects of common interest in TENs infrastructure while leaving the Member States to choose the methods of implementation. The same Article empowers the Union to support such projects of common interest.

A legal basis for the extension to renewables is provided by Article 194 TFEU that explicitly lists the promotion of renewables as one of the objectives of EU energy policies. In addition, Article 3(4) of the recast Renewables Directive stipulates "the Commission shall support the high ambition of Member States through an enabling framework comprising the enhanced use of Union funds, in particular financial instruments". EU action is necessary for the following reasons: -The scale of the problems being tackled specifically require EU action since they are by nature EU-dimensional, and can be more efficiently resolved at Union level, leading to overall greater benefits, accelerated implementation and reduction of costs if Member States act together. -CEF was developed taking into consideration the impact of the decline in investment during the financial crisis and thereafter, when long-term bank lending was scarce. Although market conditions have evolved, the investment needs in TENs beyond 2020 exceed the resources at the disposal of several Member States. -Transport: public budgets are still under considerable fiscal consolidation, while the implementation of the CEF for TEN-T in 2014-2016 shows that financing support from Member States and private sector continues to be crucial but insufficient for projects with European dimension. -Energy: while the majority of projects of common interest can be financed in principle by the market within the regulatory framework, EU support is indispensable for a number of projects because of their externalities (including innovation) and the investment volume exceeding capacity of the system to socialise the cost. -Renewables projects are also expected to be increasingly financed by the market in the future. Potential support in this area would only compensate the cost for overcoming barriers associated with cooperation beyond borders amongst Member States and/or the barriers preventing sector integration. -Digital: a future-proofed EU economy and society depends heavily on the deployment of data infrastructure capable of supporting the development of new technologies, services and applications. Insufficient funding as well as missing links in current programmes lead to persistent gaps in broadband connectivity infrastructure, which are a barrier to the achievement of the full potential of the EU´s digital economy. Digital innovations and services – including all Internet of Things services, all the applications and implications for the other economic sectors and public services - can only emerge and flourish if Europe becomes a truly connected continent. Public support, and in particular EU action is required to ensure seamless connectivity across the EU, which will in turn lead to massive benefits across various economic sectors, as well as to increased cohesion across the continent. Added value of EU action CEF provides EU added value through the development of connectivity in transport, energy and telecommunications, not only because of the type of public goods with a European dimension that it covers, but also because of its focus on projects that would not be realised without EU support. More specifically, the EU added value of CEF resides in its capacity to: -steer public and private finance towards EU policy objectives; -enable key investments where the costs are borne at national/local level whereas the benefits are tangible on a European scale; -accelerate the shift to a low-emission and digital society.

In comparison with the total investment needs, EU CEF support focuses on actions that carry the highest EU added value. It should drive the alignment of major new infrastructure investment in the EU to our long-term climate objectives, thereby reducing the risk of stranded assets. For transport, it covers cross-border sections and bottlenecks on the core networks, the large scale deployment of traffic management systems and major new priorities such as alternative fuels, digitalisation, and overall safety and security. For energy, it covers infrastructure projects with cross-border relevance in electricity transmission and storage, gas, CO2 transportation and smart grids at the interface between transmission and distribution networks (enabling integration of data flow between the various grid layers and reaching the energy consumers/prosumers) as well as increasing the intelligence of the transmission networks. It also covers targeted cross-border projects in the field of renewable energy deployment and planning involving (funding) of at least two Member States , possibly with accompanying storage facilities and connections to the transmission grid. Critical mass of funding/projects In the case of transport, TEN-T core network corridors and horizontal priorities are listed in Annex I of the CEF Regulation. Each of the corridors is underpinned by a well-known project pipeline, with identifiable financial maturity and readiness for implementation, drawn together with the Member States and all relevant stakeholders in the scope of the Corridor Work Plans (cf. 2.1 above). New emerging priorities needed to improve the future programme in the area of transport decarbonisation, digitalisation and cross-sectorial synergies constitute another cluster of projects that require EU's intervention. A significant scale-up of support to the deployment of alternative fuels infrastructure, major initiatives in the field of cooperative, connected and automated mobility or cybersecurity is expected to necessitate very considerable resource. In the case of energy, the programme addresses very specific needs and objectives across various energy transmission sub-sectors in order to ensure that an increasingly integrated energy system of the EU functions well. It is clear, as evidenced with the investment needs analysis, that CEF must provide a comprehensive answer to specific problems across the entire system since an inability to address deficiencies in one area would immediately undermine the achievements/interventions in other parts of the interconnected grid. In addition, a limited number of targeted cross border projects in the field of renewables can bring economies of scale, avoid duplication of infrastructures, increase deployment across Europe to better reflect the available potential, policy convergence, knowledge transfer, uptake and replication of innovative technologies in the European home market. It was precisely such EU added value that provided also the justification for granting support for selected offshore projects under the European Economic Recovery Programme. In the case of the digital sector, considering the size of the investment gap (cf. 2.1 above), increasing the support to connectivity is indispensable for the success of all digital policies and for a competitive European economy. In case such additional funding will not be granted via CEF, significant potential for efficient support of network rollout and for socio-economic impacts would be lost. This relates to the focus of CEF on strategic connectivity projects, on cross-border and cross-sector projects, currently not supported adequately by any other EU programme. CEF also has a proven record of resource efficient support for deployments. 3.2The scope of intervention in the digital sector is redefined in complementarity with the new Digital Europe Programme and with the centralisation of all financial instruments under InvestEU The scope of the CEF programme for the digital sector has been changed with respect to the current financial framework and will not address the part called Digital Services Infrastructure, which will be included in the new Digital Europe Programme. A further change relates to the centralisation of all financial instruments under InvestEU, with the consequence that CEF support will be provided via grants and blending. This changed scope of intervention amounts to a re-focus of CEF Digital on CEF core business of supporting connectivity infrastructure, taking advantage of the benefits of aligning with the new EU's strategic connectivity objectives defined in 2016 and thereby also leading to a re-definition of projects of common interest. The funding projects envisaged in the CEF programme for the digital sector will focus on covering the needs of the physical layer infrastructure of very high capacity broadband networks, from backbone to access networks, in view of ensuring coverage to specific communities/areas and socio-economic drivers, as well as coverage along major terrestrial transport paths. International and cross-border connectivity, as well as connectivity in support of cross-sector projects (in particular but not exclusively connectivity infrastructure requirements and operational digital platforms supporting the digitalisation of transport and energy sectors, such as for Cooperative, Connected and Automated Mobility, the Internet of Energy and Green ICT) will also be focused. Contrary to what is done in the current MFF, the new CEF will not provide support to the deployment of digital services in areas of public interest, as this will be done under the scope of the new Digital Europe Programme. The rationale behind the new projects of common interest is further described in Annex 4.

CEF will therefore become a major tool to support the delivery of EU's strategic connectivity objectives. It will thus provide the first-class infrastructure necessary to support the digital transformation of industry, economy, public administration and society at large. 3.3 The scope of intervention in the energy sector is extended to targeted cross-border cooperation in the field of renewable energy under specific circumstances Renewables deployment is currently mostly driven by Member States through national support schemes and planning with mainly national resources in mind. Support schemes that include cross-border elements, for instance when competitive bidding processes allowed the participation of producers from other Member States, had lower auctioning prices. Over the past ten years, Member States have not engaged significantly in transnational co-operation on Renewables deployment - despite the obvious socio-economic benefits of a more regional approach . This approach is promoted in several Articles of the 2009 RES Directive, a guidance document on cross-border cooperation from 2013, the revision of the renewables Directive and relevant wording in the current energy and environment state aid guidelines. In the few cases where cooperation took place in the past, projects either did not materialise, were (partly) too complex even with a grant from the EU budget (Krieger's Flak reduced from a 3 MS project to a 2 MS one) or took a substantial time to take off. The reasons for Member States' reluctance to engage in cross-border projects include: regulatory complexities and administrative burden; first mover risk; difficulty in quantifying the costs and benefits of cooperation; preference for reaping the benefits of renewables’ deployment nationally (jobs); political acceptance of using national taxpayers/consumers' money to fund projects abroad; uncertainty on cooperation design options and the difficulty in assessing the impacts on grid and integration costs. Regulatory issues play a role and the Clean Energy for all Europeans Package of November 2016 already foresees certain alignments and improvements on permit granting (for all renewable projects, not only cross-border projects), market principles for support schemes, rules on renewable market integration, rules on grid costs and grid connection. Further harmonisation in those areas would be disproportionate from a subsidiarity point of view and will in any event never be able to cover all national specificities, which also extend in into other areas of strict national competence such as spatial planning and taxation. Even more importantly, and confirmed both by research and statements from Member States and other stakeholders the by far biggest obstacle is indeed the lacking incentive for either Member States or project promoters to engage or invest in such cooperation While the integration of renewables to the grid and achievement of EU level target for renewables will be primarily achieved through the completion of electricity network infrastructure, reaching this target can become more costly than necessary when areas with good conditions are not exploited because a Member State lacks the financial means or energy needs to do so on its own. Also, the additional component on renewables cross-border cooperation can complement the priority projects on the offshore meshed grid. In the North Sea and in the Baltic Sea the current transmission projects are point-to-point interconnectors that do not yet integrate an offshore renewables source. Projects such as Krieger's Flak supported in 2009 by the EEPR and the world's first infrastructure projects linking an offshore renewables source to two national grids could thus far not be replicated. Similarly, a project might not happen when it requires coordination with other Member States to take place (e.g., investment in interconnections is needed to reap full benefits, even though this could bring benefits across several Member States). There are positive externalities from integrated projects when a production site is planned jointly (economies of scale) or connected cross-border allowing power to be transmitted to the country with higher demand and price hence improving the profitability of the site. Finally, with an EU-level binding target, renewables deployment and target achievement becomes a collective responsibility with the Commission's role becoming a facilitator. This calls for an adjustment also of available EU instruments to align them with this new reality. Current EU support for renewables does not aim to facilitate their joint deployment. Lessons can be drawn from the TEN-E Regulation and the CEF also for the future development of renewables, in particular when it comes to incentives to promote cross-border cooperation. A similar EU-wide coordination for renewables deployment in the EU is still at its initial phase, but developing it could facilitate sector integration e.g. with transport as well as the development of the meshed grids.. Finally, in outermost regions, solutions only based on interconnectors might not be the most effective ones so that CEF can become more relevant for those regions if a combination with renewables were possible. That is where the new enabling instrument for renewables under the CEF would come in. It would also underpin the provisions on partial opening of support schemes proposed by the Commission under the recast of the Renewables Directive. The present IA considers the following actions: - grants for studies and technical assistance to support Member States in: ·assessing the benefits and costs of cross border cooperation ·selecting the most adequate cooperation format · implementing cooperation agreements

- grants for studies (pre-feasibility and feasibility and development studies) for the implementation of projects - grants for works for a limited number of projects with high EU added value based on a preselected Projects of European Interest, when the EU intervention is justified by the need to overcome: ·the additional risks of complex multi country projects ·significant positive externalities such as increased grid stability or due to a particular innovative solution and/or ·MS' preference for investing only at home. The intervention would be geared towards overcoming the identified market/coordination failures/incentive structure and therefore cover the additional costs arising from cross-border and multi-purpose infrastructure planning and development, as well as providing an incentive for Member States to explore such cooperation instead of only planning and deploying renewable resources nationally. The EU funding, by helping limit the additional costs linked to cross-border complexities would incentivise Member States to develop regional planning and deployment. The total amount of support would be limited to 10% of the total energy window of the Connecting Europe Facility, whilst it would be ensured that unspent money could be transferred within the CEF energy window to TEN-E projects, and vice versa. 4Delivery mechanisms of the intended funding 4.1 Changes in the programme delivery according to the Commission's global simplification measures In the framework of the Commission's global simplification measures under the post-2020 Multiannual Financial Framework (MFF), overall simplification efforts will impact the CEF programme delivery. The preparation of the next MFF was launched by the Commission with the publication of the White Paper on the Future of Europe in March 2017. The next steps were the publication of the Reflection Paper on the Future of EU Finances in June 2017 and the circulation of the draft template basic act by DG BUDG in November/December 2017. The results of this political process provide the top-down guidance for the next MFF and will affect the form of the post-2020 CEF programming period. The template for the basic act has provided for an overall simplification basis for the new CEF regulation. This is in line with all other funding programmes and will consequently affect the new CEF in particular in the simplification of cost options, co-funding rates, Member States involvement and the development of programme objectives and indicators. It will also provide for a further simplified legal framework of CEF through a streamlined basic act and the possibility to delegate provisions and conditions to work programmes, which will facilitate further synergies between the three sectors and enable CEF to adapt to future needs. 4.2Direct management of CEF and its benefits The targeted delivery of CEF under direct management by the parent DGs and their executive agency INEA has proved efficient for the implementation of the current CEF programme. For the delivery and implementation of CEF funding, direct management has shown several practical advantages.

·Direct management allows for a stronger policy steering as regards the priorities, the selection of projects and their implementation; ·Direct management allows for exerting an independent coordination at EU level. Such coordination is exerted by the Commission (CEF parent DGs and INEA interacting directly with the project promoters); ·For the three CEF sectors, direct management allows for a fast delivery of EU support. As an example, in transport, the EUR 11 billion Cohesion envelope under direct management through CEF was entirely allocated by mid-2017 and all corresponding grant agreements were signed before end 2017. ·Direct management has allowed for project management expertise at INEA to be built up allowing for the monitoring of projects and the handling of these matters in an efficient and consistent manner while ensuring close control as regards compliance with EU standards. Direct management also allows for coordinated and consistent technical validation procedures. ·The "use it or lose it" principle, a key feature of direct management, helps Member States to prioritise as well as to adhere to commitments. Nevertheless, the possibility to recycle the commitments in cases where projects are not performing as foreseen increases the efficiency of CEF. There are many benefits to using an Executive Agency for the implementation of CEF. Gains in efficiency have been introduced through the externalised management of the grant cycle via a unified system. In addition, annual Action Status Reports from beneficiaries allow for closer monitoring of grants. Furthermore, there is increased cost effectiveness given the ratio between human resources employed and the amounts granted. The direct management of CEF will be supported especially by the "ex-ante assessment mechanism for large infrastructure projects". The mechanism is aimed at providing targeted support to ensure that the public procurement processes of CEF financed projects are implemented efficiently and effectively by the beneficiaries. It will thereby further facilitate the deployment of critical infrastructure. Based on this positive experience, which has also been supported by the CEF mid-term evaluation results, the aim for the period beyond 2020 is thus to continue the current direct management for the new CEF with identified simplification and efficiency adaptions. 4.3Proposed changes in the programme management by the parent DGs and the Agency While the general principles applied for the programme management of the current CEF programme have demonstrated their efficiency and should be maintained, this section identifies improvements in specific areas, mainly related to simplification, innovative forms of support, technical assistance to project preparation, sustainability/climate proofing of certain types of projects and synergies. Table: Challenges, objectives and delivery Challenges Objectives Delivery mechanism First challenge: completion of Trans-European Networks in transport, energy and digital area General objective to support the achievement of the EU policy objectives in the transport, energy and digital sector, as regards the trans-European networks, by enabling or accelerating investments into projects of common interest Specific objectives Transport: development of efficient and interconnected transport networks, including the completion of major cross-border projects and the removal of bottlenecks and missing links. Energy: completion of the internal energy market through interconnections Digital: deployment of very high capacity digital networks and 5G systems in line with the Gigabit Society Strategy Communication, increased resilience and capacity of digital networks. For transport and energy, the current delivery mechanism proved efficient, it will be continued (grants managed by INEA). The same delivery mechanism will be used for connectivity projects in the digital sector. Second challenge: the energy transition and technological developments in the transport, energy and digital sectors General objective to support the achievement of the EU policy objectives in the transport, energy and digital sector, as regards the trans-European networks, by enabling or accelerating investments into projects of common interest Specific objectives Transport: modernising or upgrading the transport infrastructure in order to allow for smart, sustainable and safe mobility Energy: Sustainable development through network infrastructure enabling integrating renewable energy sources including through facilitating cross-border planning and deployment of renewables. Security of supply inter alia through smartening and digitalisation of the grids Digital: Contribute to the digitalisation of energy and mobility networks to enable cross-border services in these two areas. A reinforced priority will be given as regards the decarbonisation and digitalisation components of the programme. For transport, a significantly higher share of the budget will be earmarked. While the key features of the current delivery mechanism will be maintained, some adaptation are necessary to take into account a greater diversity of beneficiaries and type of actions supported as regards: - simplified forms of grants (notably for lower amounts and/or standardised actions); - a more proportionate degree of oversight exerted by MS (application process, monitoring, certification of reports and cost statement). Third challenge: Better coordination with other EU programmes and better exploitation of synergies within CEF General objective maximising synergies among the sectors covered by the CEF and with the other EU programmes Cross-cutting specific objectives Synergies within CEF Changed scope of CEF Digital, with a refocus on core business and a realignment with other EU programm