Infrastructure efficiency: the role of regulation in incentivising smart investments and enabling the energy transition

The European Green Deal sets ambitious targets that require vast investments into the electricity network. Some estimates claim the sector will need to double the investments rate into new infrastructure to help enable the green transition.

While recognising different hurdles on this path, from financing to public acceptance, the EU Agency for the Cooperation of Energy Regulators (ACER) believes special focus should be given on how to facilitate the most efficient use of the existing grid and technologies. In this context, the regulatory framework has an important role to play in promoting innovative investments and providing the right incentives to increase the efficiency of the electricity transmission network and therefore unlock its full potential.

How can the regulatory framework incentivise smart investments?

ACER has inquired the role of regulation in incentivising smart investments to improve the efficient use of electricity transmission assets in a new position paper, published today.  

In its position paper, ACER:

• Recognises the need to improve incentives for innovative solutions, especially those focusing on network efficiency and bringing immediate benefits to end consumers.

• Acknowledges the traditional regulatory framework favours high cost solutions over less costly ones - therefore affecting the setting Transmission System Operators (TSOs)’ work in and influencing their choices.

• Suggests a paradigm shift promoting a benefit-sharing regime to complement the classical cost-based remuneration scheme of the rate-of-return regulation. This will improve the efficiency in the usage of existing infrastructure and provide the incentives to invest in innovative assets.

• Explores the potential introduction of Key Performance Indicators (KPIs) to measure, in a harmonised way across Europe, the impacts and benefits of TSOs investments, as well as of KPI-based incentives to sustain innovative solutions.

What are the main conclusions?

ACER concludes the introduction of a benefit-based remuneration scheme can potentially represent a strong incentive for regulated entities to improve their efficiency, both when utilising future and existing infrastructure.

What comes next?

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Read ACER Position Paper to find out more.