COMMISSION STAFF WORKING DOCUMENT   SUMMARY OF THE IMPACT ASSESSMENT Accompanying document to the   COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS   Energy infrastructure priorities for 2020 and beyond -  A Blueprint for an integrated European energy network      {COM(2010) 677 final} {SEC(2010) 1395 final}
Date: 2010-11-17
Institutions: European Commission
Subjects: energy policy, energy supply, environmental protection, security of supply, trans-European network

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EUROPEAN COMMISSION 

Brussels, 17.10.2010 
SEC(2010) 1396 final 

COMMISSION STAFF WORKING DOCUMENT 

SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying document to the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Energy infrastructure priorities for 2020 and beyond -  
A Blueprint for an integrated European energy network 

{COM(2010) 677 final} 
{SEC(2010) 1395 final} 

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1. 

PROBLEM DEFINITION 

The  EU  Energy  Policy1  and  its  implementing  legislation  set  ambitious  goals  and  binding 
targets for 2020 on greenhouse gas emissions2 (-20%), energy from renewable sources3 (20% 
of  final  energy  consumption)  and  energy  efficiency  (20%).  Adequate,  reliable  energy 
networks  are  needed  to  enable  meeting  all  these  objectives.  At  the  same  time,  Europe's 
networks are aging and urgently need refurbishment and modernisation. The enlarged EU has 
inherited poor  east-west and  south-north connections,  as  the  focus  was  on  national  markets, 
and  interconnections  were  serving  only  limited  security  of  supply  purpose  without 
considering  the  possibilities  of  balancing  and  trade  across  a  truly  internal  energy  market  or 
security of supply needs from a European perspective. This makes it more difficult for energy 
to move freely around the EU and makes some regions more vulnerable to supply disruption. 
The TEN-E policy has been developed and shaped in the 1990’s through the successive TEN-
E  Guidelines  and  the  corresponding  financing  Regulation4.  The  objectives  of  the  TEN-E 
policy  are  to  (1)  support  the  completion  of  the  EU  internal  energy  market,  (2)  reduce  the 
isolation of less-favoured and island regions, (3) secure and diversify the EU's energy supplies 
also through co-operation with third countries, (4) contribute to sustainable development and 
protection  of  the  environment  (including  a  greater  use  of  renewable  energy  sources  and  the 
reduction  of  environmental  risks  associated  with  the  transportation  of  energy).  It  includes 
electricity, gas and olefin transmission networks. While the original objectives are still mostly 
valid, it is not effective enough in delivering the sufficient infrastructure needed to achieve the 
EU's ambitious energy policy and climate goals. 

Obstacles to the adequate development of infrastructure can be detailed as follows:  

1)-Huge uncertainties concerning future technologies in terms of availability, possible risks 
and  cost  competitiveness,  standards  (notably  for  renewables  and  grid  technologies,  but  also 
for  CCS),  energy  mix  and  geographical  distribution  of  future  plants  (electricity),  and  new 
sources (unconventional gas, green gas, LNG/CNG, new import infrastructure and upstream 
development in third countries) can lead to sub-optimal market solutions (from an EU point of 
view). 

2)-Imperfect  internal  market:  there  is  weak  or  no  competition  in  some  Member  States 
where national markets are still dominated by incumbents. Lack of market development does 
not  allow  TSOs  to  have  sufficient  firm  capacity  contracts  to  invest  in  an  interconnector 
between two markets. At the same time, the market is unlikely to be able to develop as long as 
there is no interconnector. 

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COM(2007) 1 endorsed by the Council on 15 February 2007 (C/07/24). 
Directive 2009/29/EC amending Directive 2003/87/EC so as to improve and extend the greenhouse gas 
emission  allowance  trading  scheme  of  the  Community,  Decision  No  406/2009/EC  on  the  effort  of 
Member  States  to  reduce  their  greenhouse  gas  emissions  to  meet  the  Community’s  greenhouse  gas 
emission reduction commitments up to 2020. 
Directive 2009/28/EC on the promotion of the use of energy from renewable sources. 
Decision No 1364/2006/EC laying down a series of guidelines for trans-European energy networks and 
repealing  Decision  96/391/EC  and  Decision  No  1229/2003/EC;  Regulation  (EC)  No  680/2007  laying 
down  general  rules  for  the  granting  of  Community  financial  aid  in  the  field  of  the  trans-European 
transport and energy networks. 

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3)-Tariff regulation and financing: Transmission is a regulated business and cost allocation 
to final beneficiaries is difficult or impossible for large trans-European infrastructure. In order 
to  keep  transmission  tariffs  as  low  as  possible,  tariff  regulation  in  most  Member  States  has 
been  based  on  the  principle  of  cost-efficiency,  allowing  recovery  of  costs  only  for  projects 
based on real market needs or cheapest available solutions. There are in particular three types 
of projects, whose realisation may be hindered through this approach: 

(a) 

(b) 

(c) 

Projects with higher regional than national benefit: The higher the regional or 
EU  benefit  of  a  project,  i.e.  the  more  Member  States  are  involved,  the  more 
complex it is likely to be (cross-border issues, different regulatory regimes and 
permitting procedures etc.) and the more difficult the fair allocation of the costs 
to the final beneficiaries becomes.  

Projects using innovative technologies (e.g. DC VSC offshore grid technology, 
storage,  smart  grid  applications;  carbon  capture  and  storage)  usually  involve 
higher risks, as industrial-scale business case experiences are rare or inexistent. 
This risk is often not reflected in the regulated rate of return.  

Infrastructure  with  the  objective  to  enhance  security  of  supply  are  often  not 
justified by market demand and transported volumes, as they may be used only 
in  case  of  supply  disruptions  (low  probability  /  high  impact  events),  but  not 
under  normal  market  conditions.  In  many  Member  States,  there  is  no 
regulatory solution on how to recover the costs of these investments. 

Finally,  as  a  result  of  the  financial  crisis,  and  the  current  rapid  evolution  of  rules  in  the 
financial sector, access to capitals has become more difficult since 2008. 

4)-Permitting  and  social  acceptance:  Long  and  uncertain  permitting  procedures  were 
indicated  by  industry  as  one  of  the  main  reasons  for  delays  in  the  implementation  of 
infrastructure  projects.  In  several  Member  States,  public  opinion  is  turning  progressively 
against new projects and in particular overhead electricity lines, further slowing down already 
inappropriate  authorisation  procedures.  Thus,  certain  projects  can  take  up  to  20  years  to  be 
completed.  

5)-Infrastructures external to the EU. For energy infrastructures outside the EU that will be 
required  to  meet  the  EU’s  growing  need  for  imported  gas  or  to  import  "green  electricity", 
there are additional political risks. Beside the need to engage politically with third countries to 
identify and ensure a mutual benefit from new energy infrastructures, risks may range from an 
unattractive or non-transparent investment framework in the third countries through to the risk 
of changes in the fiscal/tax or legal environment once the investment has been made. 

6)-Inadequacy of the current TEN-E framework 

There  are  certain  geographic  areas  in  Europe  where  several  of  these  obstacles  converge, 
resulting  in  particular  infrastructure  bottlenecks.  These  areas  are  notably  the  Baltic  Region, 
the  off-shore  grid  in  the  Northern  Seas,  renewables  in  Southern  Europe  and  the 
Mediterranean,  the  development  of  the  Southern  Corridor  for  gas  and  oil,  better 
interconnectivity  and  diversification  in  Central  and  South-East  Europe  (electricity,  gas  and 
oil), and concerning whole Europe the design and development of an EU wide CO2 transport 
network and the implementation and roll-out of smart grid technologies. 

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2. 

ANALYSIS OF SUBSIDIARITY 

The energy transmission infrastructure (including an interconnected off-shore grid) has Trans-
European,  regional  or  at  least  cross-border  nature  or  impacts.  Individual  national 
administrations  and  Member  State  level  regulation  are  not  suited  or  have  no  competence  to 
deal with those infrastructures as a whole. Under Article 194 of the Treaty on the Functioning 
of the European Union, Union policy on energy shall aim at: (a) ensure the functioning of the 
energy  market;  (b)  ensure  security  of  energy  supply  in  the  Union;  (c)  promote  energy 
efficiency and energy saving and the development of new and renewable forms of energy; and 
(d)  promote  the  interconnection  of  energy  networks.  Article  170  of  the  Treaty  on  the 
Functioning of the European Union says “the Union shall contribute to the establishment and 
development  of  trans-European  networks  in  the  areas  of  transport,  telecommunications  and 
energy infrastructures”. Article 171 sets the obligation that “the Union shall establish a series 
of guidelines covering the objectives, priorities and broad lines of measures envisaged in the 
sphere  of  trans-European  networks;  these  guidelines  shall  identify  projects  of  common 
interest”. 

3. 

OBJECTIVES OF EU INITIATIVE 

The general objective is to ensure sufficient and timely infrastructure development across 
the EU and beyond in order to develop the internal energy market, ensure security of supply 
and meet the EU’s energy and climate targets. 

In  order  to  sustain  infrastructure  development,  its  main  hindrances  are  to  be  tackled.  The 
planned Communication on infrastructure priorities hence has the objectives to propose clear 
priorities  and  improve  focus  of  EU  action  for  all  relevant  energy  infrastructure,  reinforce 
regional  co-operation  and  coordination,  highlight  the  difficulties  linked  to  permitting 
procedures  and  build  public  acceptance  to  help  reducing  planning  and  permitting 
uncertainties. Clear infrastructure priorities will also provide a political message towards third 
countries.  

4. 

POLICY OPTIONS  

In order to better analyse solutions for a broad range of identified obstacles, the analysis was 
split  in  policy  areas  with  separate  options  for  each  area.  The  options  have  been  evaluated 
against  the  criteria  of  effectiveness,  subsidiarity  and  proportionality.  The  main  criterion  for 
effectiveness  is  how  much  infrastructure  investment  the  single  options  are  likely  to  deliver. 
All  the  listed  options  are  coherent  with  overarching  EU  objectives,  strategies  and  priorities. 
The combination of preferred options from each policy area  constitutes the preferred policy 
choice. 

Policy area A: Scope of the policy instrument 
Option 1: Business as usual (electricity and gas) 
Option 2: Enlarged electricity and gas 
Option 3: Enlarged electricity and gas, inclusion of CO2 networks and oil pipelines 
Policy area B: Design of policy instrument 
Option 1: Business as usual (project lists as today) 
Option 2: Updated project list 
Option 3: Limited number of priority projects/regional corridors and smart selection criteria 
Policy area C: Coordination 

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Option 1: Business as usual (national approach, EU coordinators), voluntary regional 
structures 
Option 2: EU coordinators and mandatory regional or thematic priority structures 
Option 3: EU TSO (discarded, see explanation below) 
Policy area D: Permitting 
Option 1: Business as usual (national competence), exchange of best practices 
Option 2: Inclusion of projects of European interest in national priorities and application of 
fastest national procedure (where existing) 
Option 3: National one-stop-shop approvals with streamlined time limits (5 years) 
Option 4: New harmonised permitting scheme at the EU level (discarded, see explanation 
below) 
Options C3 EU TSO and D4 harmonised permitting scheme at EU level were excluded from 
further analysis as they are not respecting the proportionality and subsidiarity principles.  

5. 

ASSESSMENT OF IMPACTS 

The  baseline  scenario  (option  business  as  usual  from  each  policy  area)  is  likely  to  result  in 
insufficient infrastructure development taking place. The worst social and economic impacts 
are deriving from insufficient infrastructure are electricity black-outs, gas supply disruptions 
and energy shortages causing price spikes. Concerning CO2 transportation, the BAU scenario 
would prevent any significant investment in networks and give rise to piecemeal development 
(at project or national level) with a high risk of future redundancy or bottlenecks in through-
flow capacity (similarly to the electricity and gas grids) and limited market integration with a 
risk of higher energy prices in the long term.  

The main environmental impact of lack of infrastructure may be the non-achievement of the 
EU's  energy  and  climate  targets  and  thus  higher  greenhouse  gas  emissions.  Construction 
works may cause temporary environmental impacts, are however limited through the respect 
of relevant environmental legislation. A longer than 90 days oil supply disruption to Eastern 
Europe  would  involve  higher  environmental  impacts  in  terms  of  increased  tanker  traffic  in 
environmentally sensitive areas as alternative transport to pipelines. 

Policy area A: Scope of policy instrument 

Major  positive  impacts  are  expected  at  the  economic  and  social  level  from  extending  the 
scope  of  the  policy  instrument  to  new  sectors  in  electricity  (Smart  Grids  including  storage) 
and  gas  (CNG),  but  also  to  CO2  transportation,  fostering  further  innovation  in  these  fields. 
The  extension  to  oil  would  also  provide  positive  environmental  impacts,  by  ensuring 
diversified  oil  supply  routes  to  the  Eastern  EU  to  reduce  the  environmental  risk  related  to 
increased tanker traffic on the Baltic Sea and in the Bosporus. Including all these new sectors 
in the scope of the policy instrument (option A3) is therefore the preferred option. 

Policy area B: Design of policy instrument 

Compared to BAU with a fixed and rigid project list defined in 2006, the update of this list 
(option B2) based on an enlarged scope (option A3) would allow taking into account new or 
changed priorities in terms of infrastructure development. This improved focus would have an 
overall  positive  impact,  but  would  maintain  the  rigidity  of  a  project  list,  which  might  again 
need adaptation in the future up to 2020 and beyond.  

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By  contrast,  a  complete  reform  of  the  current  approach  (option  B3),  with  a  very  limited 
number of broad priorities of European interest, no ex ante list of priority projects and smart 
and transparent selection criteria instead of the current three-tiered categorisation of projects, 
would  yield  far  bigger  positive  economic,  social  and  environmental  impacts.  Indeed,  this 
option would allow focussing  all attention  on  those  priorities,  which  are  of  major  European 
interest  and  for  which  EU  intervention  will  be  most  beneficial,  or  on  areas  with  strong 
innovation and high positive environmental impacts such as renewables’ integration into the 
grid, Smart Grids, storage or CO2 transport. More generally, this approach based on European 
priorities would draw attention on economic and environmental trans-boundary and regional 
effects,  while  option  B2  would  be  influenced  more  by  national  or  even  local  level  effects. 
Establishing  smart  and  transparent  selection  criteria  would  minimise  possible  distorting 
effects on the internal market, by designing rules that are in line with current legislation and 
regulation. It would also allow evolution over time of the concrete support given to projects, 
optimising the use of the policy instrument even in the longer term. It is therefore considered 
to be the preferred option. 

Policy area C: Coordination 

Option C2 with mandatory regional structures and, where necessary, EU coordinators, would 
have  significant  positive  impacts  in  terms  of  infrastructure  development  and  is  therefore 
considered  as  the  preferred  option  compared  to  BAU.  These  regional  structures  would  be 
particularly positive for projects with a clear regional delimitation such as the offshore grid in 
Northern Europe or the development of a gas corridor in South-Eastern Europe. They would 
also  contribute  positively  to  market  integration  and  better  functioning  of  regional  markets. 
The  use  of  existing  regional  structures  (such  as  the  revised  Regional  Initiatives)  would 
minimise the impacts in terms of administrative burden. 

Policy area D: Permitting 

Both options D2 and D3 would introduce more efficiency in the decision making process by 
clarifying  existing  rules  and  ways  or  recourse,  optimising  the  number  of  steps  needed  for  a 
given decision to be taken and reducing as much as possible delays for each  of these steps. 
Option  D2  would  allow  an  accelerated  treatment  for  European  priority  projects  in  those 
countries  where  priorities  have  been  defined  or  where  fast-track  procedures  exist.  It  is 
considered that this would allow improving infrastructure delivery significantly especially in 
the electricity sector, therefore increase infrastructure investment over the period 2010-2020. 

The  one-stop-shop  approach  (option  D3)  would  further  facilitate  administrative  procedures 
and,  combined  with  a  set  timeframe,  accelerate  permitting  and  increase  project  delivery 
compared to the investment needs. 

A more in-depth analysis of a wider range of options for the policy area of permitting will be 
carried out in a separate impact assessment (scheduled for 2011) in order to better assess the 
compliance  with  national  legal  systems,  their  effectiveness  and  to  estimate  how  much  the 
options would reduce administrative burdens. 

6. 

COMPARISON OF OPTIONS 

The impacts of each maintained policy option have been assessed in terms of economic, social 
and environmental impacts. 

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The combination of options with the largest positive impacts would be A3, B3, C2 and D3, 
noting that the policy area of permitting will still have to be analysed more in depth. This new 
policy  set  would  significantly  raise  infrastructure  delivery  effectiveness  and  entail  positive 
economic, social and environmental impacts. It must however be noted that even this policy 
set is assumed to deliver 62.5 bn € less than the  identified estimated investment need of 215.5 
bn €.  Indeed,  the  mere  enlargement  of  the  sc ope,  as  well  as  the  proposed  reforms  on  the 
design  of  the  policy  instrument,  regional  cooperation  structures  and  permitting,  will  not, 
ceteris  paribus,  close  the  remaining  huge  investment  gap  and  will  not  make  those  projects 
bankable, which are commercially non viable under  BAU  market,  regulatory  and  nationally 
focussed  tariff  conditions.  One  could  expect  significantly  higher  positive  impacts  under  a 
policy set using public funding or dedicated regulatory measures to enable the implementation 
of all projects of European interest, including those, which are – currently – not commercially 
viable.  The  Commission  plans  to  put  forward,  in  2011,  a  proposal  or  guidelines  to  address 
cost allocation of major technologically complex or cross-border projects, through tariff and 
investment rules. Where a higher rate of return would be required to match the project risks 
and thus make them bankable, a regulatory approach could also be envisaged. Public funding 
could be explored for those areas, where the above-mentioned measures would fail. However, 
this  needs  detailed  further  analysis,  which  will  be  included  in  the  Impact  Assessment  to  be 
prepared for the legal proposal scheduled in 2011. 

7. 

MONITORING AND EVALUATION 

For the monitoring and evaluation it is proposed that, like in the past, the Commission would 
assess  the  evolution  via  an  implementation  report  on  a  bi-annual  basis,  including  specific 
indicators, such as the number of projects constructed or under construction, diversification of 
gas  imports,  share  of  electricity  produced  from  renewable  sources,  interconnection  levels 
between  Member  States,  share  of  electricity  grid  equipped  with  smart  technologies  and  the 
average duration of authorisation procedures for projects of European Interest. 

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