Published on March 1, 2014
Florence School of Regulation Guidance to Project Promoters and Regulators for the Cross-‐Border Cost Alloca:on of Projects of Common Interest Leonardo Meeus & Xian He 13/01/2014, Brussels CEER & ACER Infrastructure Task Force mee:ng www.florence-school.eu
Introduc:on • The exis)ng prac)ce is that “each country pays for the assets on its territory”, irrespec)ve of the beneﬁts of the investment • Project promoters and NRAs have an interest to come up with alterna)ve CBCA agreements • There is now also an economic tool to support project promoters and NRAs in designing innova)ve agreements, i.e. common CBA method www.#lorence-‐school.eu 2
Introduc:on • 3 dimensions for CBCA innova)on – 1) Basing the agreements on the CBA results – 2) Extending the scope of the agreements – 3) Agreeing on a set rather than individual projects • Guidance to – 1) Project promoters and NRAs to take the lead in designing innova)ve CBCA agreements – 2) ACER to limit its interven)on to guaranteeing a minimum standard, and to promote good prac)ces www.#lorence-‐school.eu 3
Improving the current CBCA prac:ce 1. Basing the agreement on CBA results • Exis)ng prac)ce – “Each country pays for the assets on its territory” • Minimum standard – Remedy the strongest disincen)ve: compensate involved par)es with a strong likelihood of being a signiﬁcant net loser • Room for regulatory innova)on – Improving commitment of the involved par)es • Complete improvement – Alloca)ng costs propor)onal to beneﬁts diﬃcult to implement in a context with a lot of uncertainty www.#lorence-‐school.eu 4
Improving the current CBCA prac:ce 2. Extending the scope of the agreement • Exis)ng prac)ce – No formal contracts to guarantee execu)on of the agreement, resul)ng in “bridges to nowhere” • Minimum standard – Safeguard the risk of stranded costs: reward/penalty scheme based on commissioning date • Room for regulatory innova)on – Improving the commitment of involved par)es to include also other (partly) controllable factors • Complete improvement – Specifying the expected ac)on of involved par)es in every possible scenario with penal)es for non-‐compliance www.#lorence-‐school.eu 5
Improving the current CBCA prac:ce 3. Agreeing on a set rather than individual projects • Exis)ng prac)ce – Project deﬁni)on in func)on of jurisdic)on • Minimum standard – Should be part of CBA method to guarantee strongly complementary projects are deﬁned as a single PCI • Room for regulatory innova)on – Improving the commitment of involved par)es by grouped decision of CBCA at the regional level • Complete improvement – A single agreement for ﬁrst PCI list would be too complex www.#lorence-‐school.eu 6
Showcasing CBCA innova:on Compensa:on from Norway to Sweden Facts • • • • Mid-‐Norway )ght in dry years Easiest and quickest solu)on is interconnec)on with Sweden, i.e. Line A ready in 2009 Most of the assets on Swedish territory, but short term beneﬁts mainly for Norway Norway agreed to compensate Sweden for Line A un)l Line B was ready Interpreta)on agreement • • • • Incen)vized Sweden to speed-‐up Line A, and Norway to speed-‐up Line B Based on CBA results, i.e. speeding-‐up costs for Sweden and beneﬁts for Norway Con)ngent to commissioning dates of Line A & B Joint agreement for strongly complementary projects www.#lorence-‐school.eu 7
Showcasing CBCA innova:on Compensa:on from Italy to Greece Facts • 500 MW submarine HVDC link between Italy and Greece commissioned in 2002 • Italy owns and paid for 75% of project, Greece the remaining 25% • Project allows Italy to import cheaper electricity from Eastern European countries Interpreta)on agreement • Typical case with a transit country (Greece) that is compensated to jointly develop the project with its neighbor (Italy) The Italy – Greece Case Eastern Europe Italy Greece Source: own depic)on www.#lorence-‐school.eu 8
Guidance To project promoters, NRAs, and ACER • A lot of room for innova)on in cross-‐border cost alloca)on agreements, and innova)on is already happening • Future will tell if new prac)ces will prevail or whether “each pays for assets on its own territory” will con)nue to dominate • Recommend project promoters and NRAs to be inspired by innova)ve CBCA agreements, like Norway & Sweden and Italy & Greece • It is too early for ACER to set a strong standard: more cases would go to ACER, while ACER is not necessarily in the best posi)on to deal with regulatory innova)on • Recommend ACER to guarantee a minimum standard – 1) compensate involved par)es that are likely to be a signiﬁcant net loser; – 2) establish reward/penalty scheme for commissioning date in the agreement – 3) CBA method should ensure grouping of strongly complementary investments into single PCI www.#lorence-‐school.eu 9
You can also read our policy brief! http://fsr.eui.eu/Publications/ POLICYbrief/Energy/2014/ PB201402.aspx http://hdl.handle.net/1814/29679 www.#lorence-‐school.eu 10
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