Accelerating Transmission Network Development

Insufficient transmission network capacity — together with the inefficient use of existing capacities — is a bottleneck for the power system transition. It reduces the social gains of European market integration, forces the curtailmentcurtailment The reduction of power output of specific generators by the system operator on grounds of maintaining grid stability and system safety, often in exchange for compensation. of zero marginal cost renewables and limits the flexibility and reliability value it can offer. Even with benefits outweighing the costs, the investment challenge is considerable. ENTSO-E estimates that 50 GW interconnector capacity would be cost efficient between 2025 and 2030 with 43 additional GW by 2040. Investing 1.3 bn € / year between 2025 and 2030 translates into a decrease of generation costs of 4 bn € / year, while investing 3.4 bn € / year between 2025 and 2040 decreases generation costs by 10 bn € / year, considering internal network reinforcements as well.

To have a chance of increasing electricity transmission network in time for the 2050 net-zero decarbonisation goal, we need to not only better coordinate the development of its elements (see Coordinated Offshore Build factsheet) and speed up licensing, but also to make sure that it is developed in time and at lowest cost. Coordination between TSOs and transparency are key for efficient and timely network development, not only in the case of interconnectors (facilitated by ENTSO-E and the EC) but also for internal network elements as they all affect other countries.

Today, almost all transmission elements are built, owned and operated by TSOs, which is a barrier to meet the investment challenge at lowest cost. First, the monopoly of TSOs in new infrastructure build jeopardizes meeting the investment challenge due to limited capital and human resources available for project development at this scale. Second, TSOs have limited incentive to minimise costs, being able to pass on all associated costs to the consumer, including any liquidated damages associated with delayed commissioning. Third, the joint ownership and system operation at the transmission level creates a conflict of interest with public policy goals of efficiency as network owners have an incentive to extend their asset base instead of cheaper non-wires solutions (see Independent System Operators and Clear Roles and Responsibilities factsheets).  

Auctioning the building of transmission assets would, on the one hand, channel in private capital; on the other hand, it would reveal the truly efficient cost of the initial investment and operation. A study commissioned for Ørsted notes that the cost of German offshore transmission developed by the TSO is twice that of Great Britain, which has a contestable approach to the provision of connection, with almost 30% of the cost reduction attributable to the competitive approach. Six out of the seven offshore connections provided by German TSOs in 2016 experienced commissioning delays, with an average delay of one year per project.

An additional advantage of developer-led transmission development is that the developer has control of both connection and wind/solar farm development and can therefore avoid unhelpful delays in either. These advantages, however, are not exclusive to developer-led schemes such as OFTOs (offshore transmission operators): the 3,600 circuit miles of transmission lines to connect distant wind resources to demand centres in Texas were built by 10 transmission service providers in nine years, representing 23% of all new high-voltage lines added to U.S. transmission networks in the past 12 years (CREZ projects).