The European Union’s dream of creating a true  internal energy market came one step closer at the end of June with an agreement to set aside €5.1 billion  for cross-border energy  infrastructure projects for 2014-20.

The agreement was part of a deal between the European Parliament and the Council of Ministers, in the final days of Ireland’s presidency of the Council, on the Connecting Europe Facility (CEF) – an EU initiative to fund energy, transport and broadband infrastructure.

At first glance, the deal is disappointing: €5.1bn is not much more than half the €9.1bn initially proposed by the European Commission. But it is nonetheless more than 30 times the funds available for energy infrastructure in the current spending period: €155 million for 2007-13. “It’s still quite a spectacular increase,” says Paul Wilczek from the European Wind Energy Association.

The two issues that dominated discussions between MEPs and member states were: the share of bond- or equity-based financial instruments (loans) versus grants, and how the money might be split between gas projects and electricity projects.

MEPs wanted the bulk of the money in loans – for maximum leverage of private sector funds – with 75% earmarked for electricity. But member states and the Council rejected any earmarking. In the end, the agreement simply says that financial instruments and electricity projects should get priority.

That was enough for British MEP Graham Watson to claim: “This is a victory for the European supergrid…€2.5bn of our well-earned taxpayer money will now be guaranteed for electricity links instead of being made available to subsidise gas pipelines and accelerate climate change.”

Interconnectors

Cross-border electricity interconnectors are crucial to integrating more renewables into the grid. The Commission estimates that an investment of more than €200bn is needed before 2020 in cross-border infrastructure projects, about two-thirds of that in electricity.

Ana Aguado from the lobbying organisation Friends of the Supergrid said she envisaged the EU funds would support innovative electricity interconnections such as supernodes, which are hubs bringing together different renewables sources and member states.

Friends of the Supergrid plans to launch a project this year to analyse the socio-economic benefits of connecting several countries in the North Sea, including the UK and Germany, through their offshore wind farms.

Meanwhile, a reference to the Commission’s original idea for a €1bn project bonds facility, a form of innovative financial instrument, was left out of the final CEF deal.

Approaches still need to be defined to facilitate access to equity for a regulated sector like transmission system operators (TSOs), Wilczek says. Energy infrastructure projects need to become more attractive to private investors such as pension funds and insurance companies.

With the reduction in total EU funds available for energy infrastructure projects, there is more pressure than ever for revenue from grid tariffs to take up the slack.

Next on the Commission’s calendar is the adoption by the end of September of an EU-wide list of energy infrastructure “projects of common interest” (PCIs). This is expected to differ little from regional lists adopted by multi-stakeholder regional groups in May.

There are some 200 projects in the running. As PCIs, all of them would qualify for a new three-and-a-half year fast-track procedure for attaining the necessary permits and access to financial instruments. But those seeking EU grants would have to jump extra hurdles, including completing an unprecedented cross-border cost-allocation exercise.

If all the PCIs are implemented, every member state would meet Europe’s 10% interconnection target, the Commission claims. The test is now whether the new procedures and funds can be implemented – and whether the projects can secure social acceptance.

Sonja van Renssen is a freelance journalist based in Brussels.

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