IEEE Power & Energy Magazine - July/August 2016 - 112

Fit for
Purpose

Long-Term Stability and
Commitment

* The Investment Circle Is to Be Ensured:
* Appropriate TSO Cash Flows from the Regulatory Framework
* TSOs Access to Financial Markets
* Delivery of Investments Expected from TSOs
* Stability of Regulatory Methods
* Stability of (Methodologies for) Key Parameters
Avoiding Retroactive Effects

Risk-Reward Balance

* Cost Recovery
* Fair Remuneration
* Incentives

figure 1. The package of regulatory principles.

ENTSO-E believes that, for the
long-term European energy policy
goals to be achieved, a new holistic
approach for regulating transmission
businesses is required. Given the present energy scenario and the investment challenge ahead, TSO regulation
should move from the narrow focus on
cost-efficiency toward an innovative
regulatory approach focused on global
efficiency that has a better tradeoff between efficiency incentives and investment incentives.
The following principles are important to adhere to:
✔ Provide a fair risk-reward balance to TSOs: The tradeoff
between risks borne by investors and those borne by society
should result in fair remuneration for TSOs. TSO regulatory
frameworks should provide clear
rules on cost recovery and,
where considered appropriate,
be complemented with incentives steering TSOs toward a desired outcome.
✔ Grant long-term stability and
commitment to the regulatory
arrangements: For long-lasting
investments, the risk-reward balance should be stable and predictable for investors during the
entire lifetime of the asset.
✔ Ensure that the regulatory
framework is fit for purpose
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(appropriate TSO cash flows
to invest in the context of Europe's energy and climate policy
goals): Regulatory frameworks
should fit with existing policy
goals, which require massive investments from the TSOs.
All three key principles (Figure 1) should
be used in any redesign of the regulatory framework and should very much be
treated as a package.
It is also important to note that in
considering the measures and the range
of their applicability (i.e., does the
measure apply to the entire investment
portfolio or to a specific subset such as
PCIs?), a distinction should be made
between prioritization and "financeability." Prioritization ensures that
projects entailing a higher direct benefit for Europe are given precedence.
In a context of mainly balance-sheetfinanced TSOs, prioritization is necessary where projects exist that exhibit
higher complexity and risks compared
to the average, but are nevertheless
highly desired by policy makers. "Financeability" concerns the challenge
of safeguarding the TSOs' ability to
finance their activities.

Regulatory Tool Kit
The three principles, which should be
used to derive concrete actions, do not
suggest that all regulatory frameworks
should become identical. The princi-

ples can be met in different ways and
leave sufficient freedom to be tailored
to the context of national regulatory
frameworks. At the same time, initiatives at the European level to promote
these principles are not excluded.
ENTSO-E suggests a tool kit of different possible measures that help address the funding gap:
✔ reimbursement of capital expenses during construction
✔ no time lag for remuneration
✔ investor-attractive rate of return
(general)
✔ rate of return (priority premium)
✔ predictable returns
✔ regulatory approval of transmission investments
✔ stable efficiency incentives
✔ remuneration of depreciated assets
✔ regulatory treatment of investments funded by grants
✔ OPEX allocation.
For a detailed description and interpretation of any of these tools, please
consult the 2014 ENTSO-E position
paper: https://www.entsoe.eu/publications/position-papers/position-papersarchive/Pages/Position%20Papers/
Fostering-Electricity-TransmissionInvestments-to-Achieve-Europe´s-Ener
gy-Goals-towards-a-Future-Looking-R
egulation.aspx.
p&e
july/august 2016
https://www.entsoe.eu/publica
Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2016
