OECD-IEA: Unlocking transmission grid finance and investment for the clean energy transition in emerging markets and developing economies, 17 January 2024, Virtual meeting

1. The transmission system regulatory framework and its
implications on grid investments in support of clean energy
transitions
Virtual OECD-IEA Workshop – 17 January 2024
Nathan Appleman – Economic Regulation Specialist

2. 2
European TSO Industry – Main trends and findings
Main Findings
• Total Investment Cashflows (´16 -´21) ~ 70 b€
• Energy expenses = 52 % of TSO TOTEX in 2021. No or
little remuneration provided but high volatility.
• While equity ratios differ whether TSO is majority
privately owned (Ø 30%) or 100 % state owned (Ø 47%),
trend is generally downward
• More debt financing means higher financing costs
(+27.3 % compared to 2020)
• Profit after tax decreased by more than
20%
0.0%
17.5%
35.0%
2016… 2017… 2018… 2019… 2020… 2021…
Equity
ratio
-
7,000
14,000
2016 2017 2018 2019 2020 2021
TSO Investments (in M€) keep increasing since 2016 …
Of which a decreasing share is financed by equity
Based on 34 TSOs’ balance sheets and financial data

3. 3
European TSOs to invest at least 695 Bn€ in transmission assets by 2050
Cuts generation costs by 9 Billion each
year
Avoids the curtailment of 42TWh of
renewable energy each year
Cuts CO2 emissions by 31 Mton per
year
TYNDP 2022 finds that in 2040 investing 6 Billion
EUR per year alone…
150
350
435
70
205
260
2030 2040 2050
Onshore
Additional (not identified)
investments
Offshore
Minimum (identified)
investments
EU TSO transmission investments*
(Billion EUR)

4. 4
Decreasing trend in Regulated
Rate of Return
(excludes gains/losses from incentives)
In order to finance massive investments, TSOs’ rate of return needs to be
addressed
6,08 6,04 5,82 5,68 5,63 5,67
4,59
4,18 4,01
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
2014 2015 2016 2017 2018 2019 2020 2021 2022
%
RoR real Pre-tax
average (2014-19 (6) 2020 (7) (2021-22 (8) TSO)
Max 8,50%
Min 3,60%
Max 6,39%
Min 2,35%
• TSOs’ ability to raise sufficient capital (equity, debt) is largely
influenced by the Regulated Rate of Return (RoR) determined
by the NRA
• Low RoR may benefit current consumers, but lead to under-
investment and divert financing towards higher-yielding
investments (esp. in period of increasing interest rates)
• Grid costs for consumers, including financial costs, will
inevitably increase across Europe, be it in the form of tariffs,
taxes or lower quality of service due to lack of grid investments
• An open and public discussion is needed on how to share the
burden of TSO investments between current and future grid
users, and other parts of society
• Alternatives for financing TSO investments, other than the
tariff, could be considered:
• Public funds (national, regional or EU grants)
• Cost sharing across countries (e.g. CBCA, “grid corridors”)
or sectors

5. 5
Forward-looking regulation is needed more than ever to balance current
and future consumer needs
• TSO business has changed over the last decades, with new more OPEX driven
tasks while also facing lasting challenges (shortage of skilled labour, supply
chain bottlenecks)
• Regulatory tools and methods need to evolve from looking at mainly short-
term cost efficiency to focusing on long-term performance and innovation. This
should via a combination of:
• Smart incentives to make best use of existing capacity
• De-risking investments through appropriate RoR and lowering barriers for
anticipatory investments
• Possible extension to investments in the EU supply chain for critical grid
components?
• A new Net Zero Mandate could complement existing regulatory tasks and act
as guiding principle for future decisions to be better aligned with policy goals.
• Not yet approved by NRAs in NDPs
• justified on the basis of forecasted
future needs aligned with long-term
policy goals
• higher degree of uncertainty
• Use cases would not only include
offshore, but also onshore
reinforcements, accelerated
electrification, and smart grid
solutions
What are anticipatory
investments

6. 6
Thank you
Contact: Nathan.appleman@entsoe.eu