Cross-Border Electricity Infrastructure Investment Governance

Detailed Explanation With Case Laws

1. Introduction

Cross-Border Electricity Infrastructure Investment Governance refers to the legal and regulatory system governing investments in electricity infrastructure that connects two or more countries. It covers projects such as interconnectors, transmission lines, offshore grids, substations and cross-border renewable-energy connections.

A simple structure is:

Country A → Interconnector → Country B

Such projects require large investment, but they also create benefits and costs across different countries. Therefore, rules are needed for planning, financing, licensing, cost allocation, regulation, ownership and risk management.

2. Importance of Cross-Border Investment

Cross-border electricity infrastructure can:

improve electricity security;

increase transmission capacity;

support renewable energy;

facilitate electricity trade;

reduce network congestion;

improve market integration; and

connect geographically separated electricity systems.

However, the country where the infrastructure is physically located may not receive all the benefits. This creates an important legal question:

Who should pay for infrastructure that benefits several countries?

3. EU Legal Framework

The European Union provides an important example through the TEN-E Regulation (EU) 2022/869, concerning trans-European energy infrastructure.

The framework supports cross-border energy infrastructure projects and identifies Projects of Common Interest (PCIs) and, in relevant circumstances, Projects of Mutual Interest (PMIs).

The EU framework connects infrastructure development with objectives such as market integration, security of supply and the energy transition. (Eur-Lex)

The Electricity Regulation (EU) 2019/943 also contains important rules for new interconnectors. Article 63 allows certain new direct-current interconnectors to receive temporary exemptions where, among other conditions, the investment would not take place without the exemption and the investment enhances competition. (Eur-Lex)

4. Cross-Border Cost Allocation

One of the most important mechanisms is Cross-Border Cost Allocation (CBCA).

Suppose:

Country A pays €600 million

for an interconnector that also provides significant benefits to:

Country B + Country C

A CBCA decision can help determine how costs should be distributed according to the benefits received.

The European Commission has reported that the TEN-E framework has enabled CBCA decisions for electricity infrastructure projects and has helped support some projects through EU funding. (Eur-Lex)

Therefore, cost allocation attempts to connect:

Investment cost → Benefits received

5. Regulatory Cooperation

Cross-border investment normally involves several authorities.

These may include:

national energy regulators;

ACER;

transmission system operators;

environmental authorities;

governments;

planning authorities; and

EU institutions.

A project may therefore require regulatory decisions in more than one jurisdiction.

Effective governance requires these authorities to coordinate rather than applying completely separate and conflicting approaches.

6. Investment Planning

Cross-border infrastructure should normally be supported by long-term network planning.

In Europe, ENTSO-E's Ten-Year Network Development Plan (TYNDP) plays an important role in identifying electricity infrastructure needs.

Projects are assessed in relation to factors such as:

electricity demand;

renewable generation;

network congestion;

security of supply;

market integration; and

economic benefits.

This helps ensure that investment decisions are based on system needs rather than only individual commercial interests.

7. Case Law: Aquind v ACER

An important case is Aquind v ACER, Case T-735/18.

Aquind proposed an electricity interconnector between the United Kingdom and France and requested an exemption from certain EU electricity-market rules.

ACER rejected the exemption request. The General Court annulled the ACER Board of Appeal decision in 2020. (Eur-Lex)

Relevance

The case demonstrates that cross-border electricity investment is subject to regulatory scrutiny and that investors cannot assume that an interconnector will automatically receive regulatory exemptions.

It also shows the importance of ACER's role in cross-border infrastructure regulation.

8. Case Law: ACER v Aquind

The dispute subsequently reached the Court of Justice in Case C-46/21 P, ACER v Aquind.

The case concerned the conditions for obtaining an exemption for a proposed electricity interconnector and the intensity of review by ACER's Board of Appeal. The Court of Justice delivered judgment on 9 March 2023. (Eur-Lex)

Relevance

The case is important because cross-border infrastructure investors operate within a regulated environment. Regulatory authorities must properly assess whether the statutory conditions for an exemption have been satisfied.

9. Case Law: E.ON Connecting Energies

In Case C-454/18, E.ON Connecting Energies, the Court of Justice examined rules concerning a company that merely operated a cross-border electricity interconnector.

The Court held that such an undertaking could fall within the relevant regulatory concept of a transmission system operator for the purposes of the applicable EU electricity regulation. (Eur-Lex)

The Court also held that operation and maintenance costs could not simply be treated as qualifying network investments under the relevant congestion-revenue provisions. At the same time, national regulators had to ensure that an interconnector-only operator could operate in financially acceptable conditions, including an appropriate return. (Eur-Lex)

Relevance

The case demonstrates the connection between investment governance, revenue regulation and financial viability.

10. Ownership and Unbundling

Cross-border investment also raises questions about who should own and operate the infrastructure.

EU electricity law generally seeks to prevent conflicts between:

electricity generation;

electricity supply; and

transmission operation.

For certain new interconnectors, temporary exemptions from some regulatory requirements may be possible, but only when statutory conditions are satisfied. (Eur-Lex)

This attempts to balance investment incentives with competition and non-discriminatory access.

11. Environmental and Planning Approval

Investment governance is not limited to financial matters.

Cross-border infrastructure may require:

environmental impact assessment;

planning permission;

land rights;

marine approvals;

biodiversity assessment;

public consultation; and

construction authorisation.

For offshore interconnectors, additional maritime and environmental requirements may apply.

Therefore:

Financial approval + regulatory approval + environmental approval = lawful infrastructure investment

12. Investment Risk

Cross-border infrastructure involves significant risks, including:

construction delays;

cost overruns;

changes in electricity demand;

regulatory changes;

lower-than-expected electricity flows;

political uncertainty;

currency risks; and

changes in energy policy.

Temporary regulatory exemptions can sometimes be used to make particularly risky infrastructure projects financially viable. Article 63 of Regulation 2019/943 specifically recognises investment risk as one condition relevant to exemption decisions for qualifying new DC interconnectors. (Eur-Lex)

13. Third-Party Access

After construction, infrastructure must generally operate within rules concerning non-discriminatory access.

This means an investor cannot necessarily use a cross-border interconnector solely for its own commercial purposes.

Rules may regulate:

available capacity;

congestion management;

tariffs;

access conditions;

transparency; and

use of congestion revenues.

These requirements protect competition and support an integrated electricity market.

14. Importance for Renewable Energy

Cross-border investment is increasingly important for renewable-energy integration.

For example:

Offshore wind farm

↓

Offshore transmission network

↓

Interconnector

↓

Several national electricity markets

This type of infrastructure can help move renewable electricity to different demand centres.

The EU's infrastructure framework specifically links cross-border infrastructure development with interconnection and renewable-energy objectives. (Eur-Lex)

15. Conclusion

Cross-Border Electricity Infrastructure Investment Governance provides the legal structure for developing and financing electricity infrastructure that serves more than one country.

Its major elements include:

long-term network planning;

investment approval;

cross-border cost allocation;

regulatory cooperation;

environmental assessment;

ownership and unbundling;

third-party access;

congestion-revenue rules; and

investment-risk management.

The Aquind cases demonstrate the importance of regulatory scrutiny of new interconnector investments and exemptions, while E.ON Connecting Energies demonstrates the importance of regulating interconnector operators and ensuring their financial viability. (Eur-Lex)

Overall, effective governance seeks to balance private investment incentives, fair allocation of costs, consumer interests, competition, environmental protection and security of electricity supply. Cross-border infrastructure is therefore not merely a construction project; it is a legally coordinated system involving multiple countries, regulators, investors and network operators.