The future of TSOs â€“ electricity and gas highways

The future of TSOs – electricity and gas highways

www.pwc.com/utilities

PwC power & utilities roundtablediscussion paper

2 PwC power & utilities roundtable discussion paper

Hans ten Berge Secretary General, Eurelectric

Dennis Eboreime Head of Finance, Niger Delta Power Holding Company Limited

David Etheridge PwC Global Power & Utilities Advisory Leader

Jeroen van Hoof PwC Global Power & Utilities Assurance Leader

Jacob Machinjike General Manager, Eskom

Paul Nillesen Partner, PwC Netherlands

Günther Oettinger* European Commissioner for Energy

Christophe Poillion EVP European Affairs, GRTgaz

Juan Pons Strategy & Regulation General Manager, Enagas

Denis Reeves Executive Director Finance, Transmission Company of Nigeria

Jukka Ruusunen President and CEO, Fingrid

Nancy Saracino Vice President, General Counsel and Chief Administrative Officer, California ISO

Norbert Schwieters PwC Global Power & Utilities Leader

Graeme Steele Head of the Brussels Office, National Grid

Matti Supponen Policy Coordinator, European Commission

Fabio Tambone Head of International Affairs, Italian Regulatory Authority

More than 51 senior executives and experts from 16 differentcountries gathered in September 2013 in Brussels, Belgium, forPwC’s roundtable on the challenges facing modern transmissionservice operator (TSO) companies. Participants were drawn from industry bodies, regulators and companies involved in TSO activity in different parts of world as well as from PwC. The moderators and speakers were:

The roundtable

* to view a full video of Mr Oettinger’s speech please visit www.pwc.com/utilities

PwC power & utilities roundtable discussion paper 3

The roundtable focus was not confined to Europe. It was also informed byperspectives from the United States,Nigeria and South Africa. Participantswere able to discuss the very contrastingsituations of a mature Californian networkthat is facing the challenge of managinglarge volumes of distributed generationand the network challenges in Africa,where infrastructure is underdevelopedand often a long way short of what isneeded to meet power demand.

Transmission service operators (TSOs) have always played a vital, central part ofmodern power systems but now their role and the challenges they face are changing fast as the generation and flow mix become more volatile and morecomplex. Welcoming participants to the roundtable, Norbert Schwieters, PwCGlobal Power & Utilities Leader, observed: “Safety and reliability have been alwayscritical issues for TSOs. Network planning, development, natural hazards,generation/consumption imbalances, grid instability and failure are just a few ofthe things a modern TSO is dealing with. Add in the need to integrate renewableenergy sources, the wider development of decentralised generation and thestrengthening of interconnections at European level and you begin to see the fullextent of the challenges.”

Introduction

This publication reports on the manyinsights that flowed from a very wide-ranging roundtable discussion. We focus on:

• European electricity networks p4

• European gas infrastructure planning p7

• Global contrasts: California, Nigeria and South Africa p10

• Balancing the regulatory challenges p14

The roundtable enabled participants totalk in depth about the issues facingelectricity and gas transmission networks.In Europe, there is considerable impetusbehind trans-national networkdevelopment and interconnection inaddition to what is happening at a nationallevel. But there is considerable tensionbetween the scale of investment that isneeded and the current market andregulatory context for investment.

The roundtable had the opportunity to hearfrom the European Commissioner for Energy,Günther Oettinger. The start of his presentationhighlighted the changing context that TSOsnow operate in:

“The questions facing TSOs today are more complex, moreuncertain than ever before. ‘Should we look at the big picture or the small picture? Do we have a European, national or alocal perspective? Are we cooperating or competing? Will we get state support or private sector funding? Do we rely onFrench nuclear energy or on Azeri gas? Is the future in smartgrids or ‘more of the same’?”

Opening our roundtable discussion, National Grid’sGraeme Steele identified what he called an “investmentconundrum” in Europe. He observed: “the policymakers want it to happen; TSOs and other developersare ready to make the investments; there is supportfrom the finance community and the manufacturerstell us that they are up and ready to go. So why, givenall of the support we’ve got behind network expansion,isn’t it happening?”

European electricity networks

The need for clarity

Steele argued that issues such aspermitting and public acceptance, whilesignificant, are no different to anyinfrastructure investments and are not“major blocks”. He felt there were marketissues to be addressed, notably whetherthe so-called ‘target model’ for thedevelopment of the single market inEurope remains best given the changinggeneration mix. But he pointed to‘regulatory regimes’ and ‘regulatorycomplexity’ as being “the biggestchallenges for crossborder networkexpansion.”

“Regulatory stability is easy to say butdifficult to achieve,” said Steele,particularly in the context of crossborderinterconnections: “Very quickly you couldbe talking about three, five or even adozen countries. Doing something withtwo regulatory regimes is difficult enough.Doing it with more than that is even morechallenging.”

What can be done to deliver more clarity?“We need a clear line of sight to a revenuestream for these investments. We also then need to think about how capacitymechanisms might fit into this space. I think we should look at some sort ofreview of the target model. We’re nowdealing with a different world than when it was first envisaged. There is significantintermittent generation and flexibletraditional generation plant is being closedevery day across the EU in some quitefrightening numbers. That situation is onlygoing to get worse before it gets better.”

A fast-changing world

Fingrid’s President and CEO JukkaRuusunen followed up, highlighting thechallenges for companies and howunexpected events can alter longer termhorizons: “Like all TSOs in Europe, we arein the middle of an electricity revolution. It is a very peaceful revolution which willtake us up to around 2050 but a lot ishappening right now. Sudden events cantotally change the picture. The ‘black swan’of Fukushima is one example. The fullextent of the current changes in Europewould have been difficult to foresee four or five years ago.”

The goal is a single optimised European energy network. The scope of the European Commission’s guidelines on trans-European energynetworks (TEN-E) is being widened to accommodate 12 strategictrans-European energy infrastructure corridors and areas, includingnew energy infrastructure, such as gas and electricity networks andstorage, oil transport pipelines, smart grids and CO2 networks.

The talk is of a “no regrets option” with infrastructure investmentplaying a key role. A process of identification of ‘projects of commoninterest’ (PCIs) is underway with such projects being considered asessential for European energy goals and, as such, entitled topreferential treatment, including faster and more efficient permittingprocedures. The investment requirement is substantial. And, as theroundtable discussion shows, there are considerable obstacles that lie in the way.

Europe’s network vision


As well as managing long-term planning,companies have to balance many shorterterm and immediate, day-to-day,pressures: “We face a lot of volatility. We’re running a real-time process all thetime,” said Ruusunen. “There is a lot ofpressure balancing reliability and themarket. If we do more capacity, take morefor reliability, we give less to the market.What is the right balance? There is alsomore crossborder cooperation and morevolatility, so you have real timeconnections to your neighbours becausethings happen very fast. Then, of course,there is the need to deliver shareholdervalue, efficiency and lower tariffs.”

Strategy

What does this balance mean forcompanies? Ruusunen stressed the needfor focus: “You have to have a verydisciplined, clear, focused strategy becauseyou cannot do everything. As TSOs, wewant to save the world and we want to do everything at the same time. But it isimpossible. If you want to be the best inyour activities, you have to focus yourself.”He outlined how Fingrid puts customersand stakeholders at the head of its strategybut sought a balanced vision (figure 1) and ways of measuring its performance in all its key strategy areas.

Some of the main strategic metrics that the company uses also form part of thebonus system for everybody working in the company. These measures are thevalue of undelivered electricity (reflectingelectricity reliability), congestion hoursbetween Finland and Sweden (functioningelectricity market) and tariff affordability(cost efficiency).

Outsourcing is another important part of Fingrid’s approach. The companyemployed just 275 people at the end of2012: “We keep the core competencies inthe company but then we do maximumoutsourcing. So we rely on the serviceprovider market and that is why theamount of people working in Fingrid is so small,” observed Ruusunen.


Figure 1: Fingrid’s balanced vision

Customers andstakeholders

Reliable electricity – functioning electricity marketHigh quality services – affordable tariffs

Finance

Cost efficiency – value creation for owners

Internal processes

Personnel and expertise

Productive – Innovative – Healthy

Adequacy of transmission system

Capital investments and maintenance work efficiently, safely and

at the right time

Promotion ofmarket functioning

Active maintainer and developer of the

electricity market

System operation

Proactive and reliable system operator

The roundtable heard from Günther Oettinger, European Commissionerfor Energy, whose presentation included a look ahead at the futurechallenges and role that TSOs will play in a modern energy system:

“Looking to the future, we will need TSOs to dig deep, to show creativity,innovation. You will benefit from a European perspective, a long-termvision, and an ability to work with other sectors, such as telecoms andcyber security specialists, transport or urban planners, in scenariobuilding and network planning. International cooperation will becomemore important, with other countries, in technology platforms,international negotiations. Managing the network is just the start! The future role of TSO’s will be, frankly, far more interesting!

“We are investing, not in a replication of the 20th century energynetwork, but in a network for the 21st century. Everyone will need toadapt, and this includes TSOs. The days of one large coal power stationusing local coal and serving one specific city are well and truly over!“In the longer term, high-voltage, long-distance, and new electricitystorage technologies must be developed to accommodate ever-increasingshares of renewable energy, from the Union and from its neighbourhood.Offshore wind and decentralised solar energy call for a new type ofnetwork, not just in terms of supply balancing, but also in terms ofphysical security – linking up offshore wind farms safely to the mainlandgrids, for example.

“TSOs will need to work even more closely with technology developers to resolve the grid issues around these changes. The implementation of smart grids, smart networks, intelligent cities and communities allhave practical implications for TSOs. TSOs will need to build up a newdialogue, not just with energy experts, but with innovators in manydifferent fields – information technology, electric transportation,agriculturalists, economic modellers, and many more besides.”

An exciting TSO future

Source: Fingrid.


You mentioned using options forplanning investment projects, can yougive an example?

Jukka Ruusunen, President and CEO,Fingrid: We try to do as much as possiblein advance and reduce uncertainty fromprojects. For example, Finland is planningto have new nuclear power plants after2020 and we need a lot of lines to connectthem and to improve the existing grid. We don’t know whether or when thosenuclear investments will be made. But stillwe have planned what lines are needed,we have carried out most of theenvironmental impact analysis and havethe permits. So when the new generatorsannounce that they are ready to go, we are ready to go.

Are European network codes killinginnovation? How do you strike a balancebetween rules and flexibility?

Jukka Ruusunen: In the Nordic countrieswe developed a very advanced electricitymarket via innovation, not via laws. Now Europe is moving towards a futureelectricity system that is changing very fastand is uncertain but, at the same time,fixing a lot of rules. This is a risk. We havelost a lot of flexibility actually by writingsuch detailed codes.

What’s your vision of the future asbetween TSOs and DSOs?

Jukka Ruusunen: The distribution systemoperators have to manage a lot ofuncertainty. The new meters are creatinghuge amounts of data. In Denmark, thereis already a hub built by a TSO which getsthe data from the DSOs. We don’t knowhow much PV there will be in Finland thatwill be in the distribution grid. But it’simportant to develop things cooperativelybecause we see that this is a win/win. If we do it in the right way we can increasethe cake and then it’s easy to share.

Who in your view should holdresponsibility for establishing new gridsand interconnecting markets?

Graeme Steele, Head of the BrusselsOffice, National Grid: It depends whichmember state you are in. For the vastmajority of member states, but not everystate, this is seen as a responsibility of thedomestic or national TSO. In turn, underthe third package, they have an obligationto coordinate with each other in an EUcontext so the crossborder element isbrought in. We’ve got a different approachin the UK with the responsibility sittingoutside the domestic TSO. But there’s noobligation with regard to interconnection.There’s a project looking at this issue in theUK at the moment1. I think it’s easier if itsits with a national TSO. It doesn’t solvethe problem totally but it helps in havingsome clarity about where the obligationdoes lie.

We’ve seen increasing local subsidies andregulations popping up everywhereacross Europe. How does this fit with thechallenges of working towards a singleEuropean workable model?

Graeme Steele: I think it is a big challenge.Who would have predicted a few years agothat the German system would have 60GWof capacity equally divided between solarand wind power. It means that forsignificant periods you could have theentire German demand being met by thoserenewable sources. But they can slip offthe system very quickly and you need theability to access a lot of flexible generationin the background. It does get back tomarket interventions like capacitymechanisms offering support to ‘anytimegeneration’. Leaping to an answer that saysyou need to try and harmonise thosethings across the whole of the EU couldprobably make you take several steps backbefore you can start moving forward again.I think we need to see how can we try andincorporate what we’ve got but we have tothink about what’s the ultimate aim ofwhere we have to get to.

1 Integrated Transmission Planning and Regulation (ITPR) Project, Ofgem.

Q&A

European gas infrastructure planning Perversely, the immediate challenge to gascomes not from cleaner energy but a moveto coal as cheap coal imports, the collapseof the EU carbon trading market and theimpact of renewable generation has led toa massive displacement of gas-firedgeneration. Together with the effect of theeconomic downturn, this has led to aconsumption downturn in Europe.

But the case for gas as a flexible andcomplementary source of powergeneration alongside intermittent anduncertain renewable generation is a strongone. Juan Pons illustrated this by pointingto two contrasting recent days in Spain:“On one day (a peak wind day), wind wasproviding 66.5% of electricity generationand gas could almost disappear from themix but on another day there was no windand gas had to fill the gap. There iscomplete complementarity between gasand renewables. We have to be ready tohave the necessary flexibility to providethis fluctuating demand.”

Expanding competition in gas

Investment in gas infrastructure isdelivering greater supply competition intoparts of Europe. Poillion outlined thearbitrage effect of more pipeline gascoming into France from Norway andRussia in 2012 to offset higher liquefiednatural gas (LNG) prices and reduced LNGflows: “Thanks to the flexibility of the gastransmission network shippers can switchfrom one source to another. But a lack ofcapacity between the north and the southpart of France and between Spain andFrance leaves these regions verydependent on LNG imports.”

Investment in gas network transportation andinterconnector capacity is an important part of thedevelopment of Europe’s energy market. It is necessaryfor market integration, competition between differentsources of gas and overall security of supply.Infrastructure development has enabled significantprogress in north-west Europe towards theachievement of the gas target model of liquid hubs, free gas flows and functioning markets. But majorobstacles remain and the role of TSOs in infrastructureinvestment is central.

Southern France and the Iberian Peninsulaare among the regions where lack ofcapacity is hindering market integration.Sustained price differences between theseregions and the European gas hubs furthernorth are the product of insufficientinterconnection. The roundtable had thebenefit of hearing from Juan Pons,Strategy & Regulation General Managerfor Spanish TSO Enagas, and ChristophePoillion, EVP European Affairs at GRTgazin France, on factors affectinginfrastructure investment.

The role of gas

An important overriding factor for new gasinfrastructure is the place of gas in a futuredecarbonised world. Poillion observed: “In the context of the 2050 roadmap, is itstill useful to develop pipelines fortransporting gas which is a fossil fuel whenthe commission would like to have lessfossil fuels in the long run. Even if thecommission says it (gas infrastructure) is a ‘no regrets’ option, it still needs carefulthought.” In the long run, Poillion saysGRTgaz is moving towards a greener gasnetwork which would allow theinfrastructure to have a long-term use in adecarbonised context, for example usingthe network for transporting bio methaneand for power to gas solutions.



The need for increased capacity to achievethe single market is clear. Much progress is already being made with north-southcapacity between France and Spainroughly doubling since 2007 alongsidecompletely new south-north capacity.More is needed and Franco-Spanishinterconnections are on the EU list ofprojects of common interest (PCIs). But said Pons: “Those projects would besubject to cost benefit analysis. The tradersand suppliers tend to go more towardsshort term contracts. For a cost benefitanalysis it is necessary to assure thefinancing on long term contracts. So Ithink there it will be difficult for PCIs to be financed by the market.”

Pons went on to cite the example of theopen season consultation on the proposedlinking of Catalonia with the French gridvia the Midi-Pyrénées: “There was hugedemand but when it moved to 20 yearcommitments the demand was muchlower. It demonstrated that we have tolook for other ways of financing the PCIsthat will be necessary to really achieve anintegrated European market.”

The need for clearer investment signals

Poillion backed up Pons’s concerns: “We no longer have any long term signalsfor supporting long term investments.There are significant investments at stake.Not many years ago, we were lookingahead to a golden age of gas but right nowwe have something completely different.The lack of long term visibility on energypolicies is hampering the development ofthe network.”

He gave the example of Obergailbach (the France-German interconnector) andthe consequences of the application offramework guidelines to highlight thereduction in long term price signals: “The result is you are booking only 35% of capacity on a long term basis. As a TSO,I would not invest anymore because I amnot sure the pipeline will be used on a long term basis.”

Poillion continued: “The network codeswhich have been developed at EU level aretrying to promote liquidity of markets andshort-term capacity booking. This is ok forshort-term competition but is blockinglong-term investment decisions.”Nevertheless companies like GRTgaz arestill investing: “In the past we wereinvesting around €400m a year. It is about€600–800m for the coming years. It couldhave been €1.2bn on an optimistic basisbut this is no longer the case.”

Both Poillion and Pons expressed concernabout the current gas storage situation in Europe. Pons observed: “Gas storage isexperiencing difficult times. Marketconditions mean it is not worthwhilecontracting storage capacity. Manycountries are starting to think whetherremuneration of storage should bereconsidered.” Poillion added: “There is a definite worry in several countries. If winter is usual then no problem but if it is cold then there could definitely bedifficulties. There is a need to ensuresecurity of supply by using adequatelyexisting infrastructures.”

“Not many years ago, we werelooking ahead to a golden age ofgas but right now we havesomething completely different. The lack of long term visibility onenergy policies is hampering thedevelopment of the network.”


What’s your view on the rise of spotmarkets and more market-based pricingversus oil-indexed longer term contracts?How you see that developing?

Juan Pons: It’s a trend. As gas is moreinterconnected and there are hubs, therewill be more spot trading. But I think it will take some years to be implemented. It could be a threat to LNG infrastructuredevelopment. Projects are expensive and if they don’t get the assurance of a fairreturn for investment they will be delayedor stopped I think there will always be aneed for long term contracts with a pricethat allows project financing otherwisethere will be no supply.

As well as the interconnector capacitybetween countries, there is also the needto expand internal domestic networks.How is this expenditure covered?

Christophe Poillion, EVP European Affairs,GRTgaz: There is a regular process ofconsultation to see when the market willbe ready for additional capacity. There arewider security of supply and other benefitsand an assumption is made about whatcosts can be ‘socialised’. In a recentexample, the expectation was that 30%would be socialised.

What I am not hearing is that financingis an issue. Is that right?

Christophe Poillion: I’ve not mentionedfinancing at all. In the past, we wereasking for a stable and high enough rate of return on investments. That is stillneeded for PCIs. We invest in new capacityif there is enough demand with long-termcommitments from the market, if theregulatory office approve it, if there isenough profitability and, of course, if wehave the money from our shareholders.

In electricity markets the hot topic iscapacity mechanisms. Is there a need forsomething similar in gas storage?

Juan Pons, Strategy & Regulation GeneralManager, Enagas: I think some countrieswill try to go to some kind of capacitymechanism. If the market does not providethe storage, and it is a risk for security ofsupply, I think that perhaps should becompulsory in some countries. The costwould need to be financed by the state orintegrated into the tariff as a cost ofoperating the system. In Spain there is anobligation on traders and suppliers to keep20 days of supply (based on their sales inthe previous year) stored in the system.

Am I right in thinking there is not yetprice transparency and gas hubs inSpain? When will this be able to bechanged?

Juan Pons: It is a real issue. One of thereason the price is so high in Spain is the lack of a real hub. There are a lot ofexchanges but most of it is over thecounter so the price is not known. At Enagas we are promoting an Iberian gas hub and we are working for this. The government has announced anintention for gas reform by the end of theyear or the start of next year. I think one ofthe things it has to create is a frameworkfor a hub. We really feel the lack of thisand it would help bring the Spanish pricescloser to other European prices.

Q&A

But if the nature of the challenge isdifferent, it is no less significant. TheCalifornia ISO conducts 27,589 markettransactions each day, managing 26,024circuit-miles of transmission lines anddelivers 246 million megawatt-hours ofelectricity annually. California consumesmuch more power than it produces andhas an import capacity of 16,000MW fromneighbouring territories. It is also at theforefront of handling considerable volumesof intermittent renewable generation inthe system.

Global contrasts: California, Nigeria andSouth Africa

Californian renewables ramp-up

“Right now quite a substantial amount ofrenewable production comes from windand we’re about to head into a significantamount of solar growth. By 2020, a muchgreater proportion of California’srenewable generation will come fromsolar,” said Saracino. Currently renewablesaccount for just under a fifth (18.3%) ofpower generation in California. The state’srenewables portfolio standard requires theutilities to procure renewable resources tomeet 33% of retail sales by 2020 andpolicy makers are considering requiringeven higher percentages of renewables, inthe range of 40–50%.

“We call this our ‘duck chart,’” saidSaracino, introducing a chart showing thechallenge of meeting demand whilehandling daytime solar and intermittentwind alongside other conventionalbaseload resources that can’t easily beturned off, such as nuclear and some gas-fired plant (figure 2).

The contrasts in electricity networks around the worldwere illustrated vividly at the roundtable withperspectives from California, Nigeria and South Africa.In Nigeria, there is a population of nearly 170 millionhaving to get by with 5,000MW compared with 30 million people and 60,000MW in California. “It’s the difference between not having enough to drink and worrying that the red wine isn’t being served at the right temperature”, commented NancySaracino, Vice President, General Counsel and ChiefAdministrative Officer, California ISO.


• Active flexible capacity procurement.

• Dynamic transfers.

• Lower bid floor to incentivise economic curtailment.

• Pay-for-performance regulation.

• 15-minute intra-hour scheduling.

• Resource adequacy enhancements.

• New energy imbalance market and better regional coordination.

California ISO market enhancements to help the integration of higher levels of variable energy resources

“It’s useful in talking to policy makers andregulators to let them understand thedispatch and potential over-generationissues that arise from non-flexible supply.”These include: “A very steep climb up tothe evening peak which by 2020 will beabout a 13,000MW climb in two hours.Right now we do not have the capability to manage that kind of flexibility, but weknow this ahead of time so we’re workingon developing the right tools andresources.” The chart uses the example ofan early Spring day – a time of year whensolar intensity is relatively high but thesummer air conditioning demand hasn’tbuilt up.

Managing volatility

“As you can see, we have more generationduring the day than we can use. So, this is the challenge that we’re looking tomanage within the next seven years,” saidSaracino. She stressed the importance ofaccurate forecasting and good operatortools as well as market enhancements,including incentives for load shifting,demand response and resource adequacy(see panel).

There are plans to use an energyimbalance market as a platform tooptimise real-time dispatch: “Theeconomic value of this is quite profound. It also allows for a diversification withrespect to the geographies. So, amongother things, you take advantage of windin different places and the sun shiningacross a larger span of the country.”


Figure 2: ‘The duck chart’: California ISO net load on an early Spring day – the net load pattern changes significantly, starting in 2014

Net load – March 31

12am 3am 6am 9am 12pm 3pm 6pm 9pm

Hour

28,000

26,000

24,000

22,000

20,000

18,000

16,000

14,000

12,000

10,000

0

Meg

awat

ts

Head: growing evening peak demand

Belly: additional demand or storage may help absorb excess generation inovergeneration conditions

Belly: significant midday decrease in net load may result in having too much electricity on the grid which could result in low or negative prices

Neck: the combined effect of decreasing midday and increasing evening net loadresults in a longer, steeperneck, requiring generators to respond much faster to keep up with electricity needs

Source: California ISO.

2012 (actual)

2013 (actual)

2014

20152016

2017

20182019

2020

Nigerian power reform accelerates

Dennis Eboreime is Head of Finance, NigerDelta Power Holding Company (NDPHC),and is part of a team leading the NationalIntegrated Power Projects (NIPP) at theheart of the country’s power system reformprocess. Introducing an overview ofNigeria’s power system challenges hecommented: “We are trying to get to where most of the speakers are already.We’re obviously in a far deeper and lowerlevel of the power curve than everybodyelse, but the challenges are nonethelessextremely interesting.”

Electricity demand in Nigeria far exceedssupply. Capacity is about 10,300MW ofwhich less than half is currently availableand about half the population is off thegrid. Eboreime outlined: “Thetransformation and reform process hopesto reach about 20,000MW although,optimistically, our vision 2020 looked at40,000MW. But from where we standtoday, that is a big challenge. In its firstphase, the NIPP will contribute 5,000MW.”

Rehabilitating transmission

To get a closer insight into the transmissionchallenges in Nigeria, the roundtableheard from Denis Reeves, ExecutiveDirector Finance at the TransmissionCompany of Nigeria (TCN), and part of theMHI team that has been put in place tomanage and to rehabilitate the electricitytransmission system of Nigeria. “It’s verydifficult to put it into words what itentails,” said Reeves. “But imagine processre-engineering a nationwide company thatis primarily paper-based in its systems.Trying to establish opening balance sheetpositions and determining steady statefunding requirements just for the soon tobe separately regulated entities is one of the challenges.”

“When the MHI team arrived in thesummer of 2012, there was no crediblesystem master plan in place. This is nowone of our priorities,” said Reeves. He alsoobserved that TCN was ‘poorly funded’:“By international standards, there was avery low level of investment in trainingand planned maintenance.” But he isexcited about the momentum that isbuilding up behind change. For example:“When the distribution companies and thegeneration companies were put up for sale,there were issues left to be resolvedbetween the government and the varioustrade unions. That has all happened in thelast maybe five or six weeks and hastransformed the industrial relationshipenvironment within Nigeria for the good.”

There is a significant multi-year financialplanning exercise underway: “For the firsttime, we’re trying to get a financial view ofthe national grid of Nigeria that mirrorsthe engineering view. It’s a five to sevenyear view and it’s throwing up a very largefunding requirement.” A key reform that isneeded is a cost-reflective tariff agreedwith the regulator: “We are working onthat. We still do not have enough revenuescoming in to cover our steady state costs.We need access to funding.”

Reeves estimates US$4–7bn investment isneeded in the transmission company overthe next 10 years to enable it to get closerto steady state transmission againstgeneration and against end-userrequirements. But despite the scale of thechallenge, he is optimistic: “I’ve beenwatching the power sector in Nigeria forabout ten years and more has happened in the last 18 months or so than hashappened in the previous eight years in my opinion. If that momentum is kept up, I think you’ll see some very significantthings happening in Nigeria in the not toodistant future.”

Transmission in South Africa

Jacob Machinjike, General Manager,Eskom, completed the input to theroundtable from Africa. Unlike theunbundling in Nigeria, Eskom remains themonopoly power utility in South Africawith business units within the companythat deliver the TSO, generation,distribution and customer retailingfunctions. The possibility of unbundlingthe TSO function has long been discussedby the government but without anydefinite conclusion.

Machinjike reminded participants of thescale of Eskom’s operations: “It provides95% of South Africa’s electricity and closeto 67% of Africa’s electricity. If you liftEskom’s infrastructure and yousuperimpose on parts of Europe, it willcover Spain, Germany, France andBelgium.” Renewable generation makesonly a marginal contribution to a largelyfossil-fuel generation mix with somenuclear.

Active demand-side management has beenan important part of Eskom’s strategy inrecent years and DSM annual savings areestimated at around 360MW. Machinjikeadded: “The challenges are aroundpeaking. We have gas power stationslargely for peaking because our profile fordemand in energy is very peaky in themorning around 9–10am and in the lateafternoon all the way to 9pm.” Electricitytheft is also an issue with combinedtransmission and distribution operations’losses totalling 8–9%. High levels of theftof copper and pylons persist, which areaffecting plant performance and increasing costs.


“I think you’ll see some very significantthings happening in Nigeria in the nottoo distant future.”

A major government divestmentprogramme running from April 2013 toJune 2014 is at the heart of the currentstage of the reform. Nine out of ten powerplants and ten out of 11 distributioncompanies have so far (by September2013) been handed over to privatemanagement. Transmission is to remain in state hands but run through amanagement contract with ManitobaHydro International (MHI) of Canada.

As part of the overall strategy, NDPHC was fully funded by the state to developten gas based power plants, along with the transmission and distributioninfrastructure required to deliver thegenerated electricity. These assets are allplanned to be sold to private investors oncompletion, except for the transmissionassets which will be handed over to theTransmission Company of Nigeria (TCN) in return for an equivalent value of sharesin TCN. In addition, the gas transportassets in NDPHC’s portfolio are to be soldoff with the power plants or to thecountry’s gas transport company.

“Right now we are on target on all theactivities that we are running,” saidEboreime. “We intend to use the proceedsfor another phase of power investments. It is obvious what we have done so far has not even scratched the surface, so we need to do more.” Among the challengesfacing the reinvestment strategy,transmission infrastructure cannotevacuate all of NIPP generated output and there is also the problem of gridinstability. More investment is requiredjust to meet current generation, as well as for expected growth.

Given the scale of challenges ahead, arethere any role models or other entitiesaround the world that you look to emulate?

Jacob Machinjike, General Manager, Eskom:We benchmark ourselves with the best inthe world. So, with the models that arethere, we have been testing them in-houseand in some cases we have gone to the stagewhere we can say we can break things upand start moving on in line with otherplayers. Our direction is linked to governmentpolicy. So, it has been a waiting game fromour side and it has worked well up to now.

Dennis Eboreime, Head of Finance, NigerDelta Power Holding Company: Nigeria andSouth Africa are the two biggest economiesin Africa and, if South Africa can do46,000MW, we should be able to do so. So we put that as a bar. If we can reformpower, that will have a significanttransforming influence on everything.Recently, some three years ago, we did the same for telecoms and it’s a massivesuccess, so we think we are heading in thesame direction here.

Denis Reeves: If you were to look at whatwe’re doing, I think it would frighten the lifeout of you. However, if you look at whatManitoba Hydro International in particularhas done in the past in different countriesand if you look at individuals within theteam, we all have experience of implementingthe required transformational componentselsewhere. What we are doing in Nigeria isonly different in the sense of being bigger in scale and bigger in complexity.

We are starting some market trials in a few weeks in Nigeria. Of course,California had a bumpy road starting the market. What recommendation do you have for us starting from scratch?

Nancy Saracino: It’s a very importantquestion. I recommend you come and talkto our market monitor about how to put in place really effective mechanisms forobserving market behaviour. It still happensin California’s market today, but we’re much better at catching it, so you look fortrends, you look for anomalies and then you start figuring out what’s causing them.You absolutely need a regulator with a verystrong enforcement regime behind it,including penalties, and the potential forcriminal sanctions. Our market is muchmore well-developed than the one that wasmanipulated to such disastrous effect in2000/2001, but it is a whole framework thatI think is really part of any well-designedand operating market. It must be highlyregulated due to the nature of what we’reserving, which is a product that has nosubstitute.

In California, how do manage the extracosts to the system of adding renewablegeneration? Are they borne by therenewable developers, for example, orsocialised within the tariffs?

Nancy Saracino, Vice President, GeneralCounsel and Chief Administrative Officer,California ISO: It’s a great question andthe answer is complex. Development hasbeen in part funded by the federalgovernment with respect to incentives and tax breaks. Right now the load-servingentities are entering into contracts withthe solar developers largely for solarexpansion. But the price point fordevelopment has actually been going down and so you see the utilities startingto try to renegotiate the contracts to keepup with this evolution in technology.Certainly rates are going to increase forrate payers. But some of the estimates foradded costs for consumers are much lowernow than they were a couple of years agowhen we were first estimating it. To meetthe costs of transmission system expansionwe’re trying to optimise on a regionalbasis.

But the cost is high, isn’t there a dangerof a rate shock?

Nancy Sarcino: We are concerned thatultimately there could be a rate shock. In our view, this notion of regionalexpansion of the grid, so that you’re co-optimising and saving everybodymoney, is absolutely essential. So,throughout the entire west of the US,using the resources that are alreadyavailable and underutilised in other statesand then co-optimising the peaks and theefficiencies you get from a broadergeographic area. Otherwise, I think we will hit a point where the rate impact could be quite significant.

Is the proposed supergrid the rightdevelopment for Nigeria at the currenttime as opposed to a conventional grid?

Denis Reeves, Executive Director Finance,Transmission Company of Nigeria:I wouldn’t say ‘no’ but it’s a ‘very cautiousyes’. We’re healthily sceptical about it.We’ve taken a fairly pragmatic view andbudgeted for the necessary co-fundedfeasibility studies that will need to takeplace.


Q&A

At the heart of the market

The pivotal part played by TSOs is notalways widely appreciated: “It is myconviction that the attitude and position of the TSO determines to a much largerextent than we commonly think thesuccess of a market,” remarked Oettinger.“New investments in interconnections and crossborder trade rules mean thatsuppliers can sell beyond their homemarkets and ever fewer Member States will be completely dependent on a singlegas supplier.” TSOs are also important in the context of energy efficiency: “We energy users want to think morecarefully about our consumption habits, if we want to control expenses and takesome of the strain off our systems. To dothat, we need smart grids and smartnetworks, as well as some consumereducation.”

But there are also important questions:“How can you take advantage of the newopportunities, while fulfilling the veryurgent demands and expectations of bothconsumers and suppliers? How can TSOscooperate in a market where, in practice,they are also competing?” He also stressedthat the many developments in renewableand decentralised generation “can onlyhappen with investments in a new kind of power network. A network which canintegrate intermittent power, a smartnetwork and a network that canaccommodate reserves and storage to back up increasing shares of renewables.”

Oettinger also highlighted the importanceof gas networks: “Our economy isincreasingly dependent on gas, while weare producing less and less. We needbillions of euros of investments in newpipelines, such as the OPAL project, importroutes, such as the Southern Corridor,pipeline maintenance, reverse flowprojects, links for LNG terminals, such asin Poland, or possible future shale gasproduction sites. Tomorrow’s security ofgas supply is today’s infrastructureproject.”

Balancing the regulatory challenges

Planning and investment

But again this raises many questions. As Oettinger remarked this is all “easilysaid but in practice, who will pay for thesenew networks? Governments? Consumers?Suppliers? TSOs? We need a clear answerto this question.” Given the scale ofinvestment needed, policies need to bedesigned to support investment. Oettingersaid: “The economic situation is not on our side. So we have to make sure ourpolicies make up for this as far as possible.The financial instruments will be designedin a way to best support long-terminfrastructure projects inter alia by makingdirect market financing and risk sharingeasier.”

He also stressed the importance ofspeeding up planning approvals: “Changesin the planning laws, which theInfrastructure Regulation create, give anew opportunity for TSO’s to become moreinvolved in local community decisionmaking, speeding up planningauthorisations, getting more publicacceptance. This is an opportunity not tobe lost.”

Oettinger outlined some of the initiativesthat are taking place as a result of theEurope-wide planning and operations rolesassigned to ENTSOs in the Third EnergyPackage. These include the drafting ofnetwork codes – “this is very much work inprogress, but it is very simple: without theTSOs no network codes and withoutnetwork codes no functioning wholesalemarkets” – and the ten year networkdevelopment plan which he said “is astepping stone towards more TSOcooperation and better management ofnetwork investments.” He also pointed out:“ENTSO-G’s work on the Winter Outlookand ENTSO-E’s work on generationadequacy give policy makers valuableinsights on the security of supply situationin gas and electricity.”

The EU’s view on thechanging transmissionlandscape

European Commissioner forEnergy Günther Oettingeroutlined the fundamental roleTSOs play in Europe’s internalenergy market and the way inwhich this role is fast changingas the nature of the marketand the energy system change.“What TSOs do is crucial to the security of supply, tocompetition, to sustainabilityand ultimately to our wholeeconomy,” he stressed. “TSOshave adapted very well to thechallenges that have cometheir way. They are and haveto be the true marketfacilitators. With theirfundamental role, they havethe power to make or break the functioning of a market.”


The need for an integrated approach

Oettinger does not underestimate thechallenge of incorporating large volumesof intermittent renewable generation:“Tackling the challenges of increasinglyvariable low-carbon generation whilemaintaining a high standard of security ofsupply is not going to get easier,” he said.“And it will come at a cost, in terms of theneed for new infrastructure. It will be farcheaper if done at European level throughintegrated markets. Adequate, efficient,and reliable crossborder infrastructuremust become the norm.”

The role of TSOs in the development ofintegrated markets won’t just be anadministrative one. According toOettinger: “It will also be very political.Cooperation and ‘Europeanisation’ mustintensify at all levels of energy policy, and this includes network management.Whether we look at maintaining networksor maintaining security of supply, theissues are increasingly cross-regional. We need a change in mentality in MemberStates away from the traditional focus oninternal networks, towards a moreEuropean perspective.”

The introduction of infrastructureregulation is giving this shift somemomentum. Oettinger observed: “For thefirst time, Member States have agreed onthe importance of discussing theinfrastructural needs of their territorieswith their neighbours. They have acommon multi-lateral und multi-nationalapproach on the infrastructural needsinside and beyond their borders. Nationalborders are still the reference for actions,but they will not be the ‘natural bottleneck’anymore. For TSOs, this means a decisiveshift towards more cooperation andintegrated actions when it comes tonetwork planning and development.”

The first EU-wide list of projects ofcommon interest (PCIs) is an importantstep. Oettinger hoped “that this list will beadopted by mid-October 2013”and sees itas “just the first step within a longer-terminfrastructure vision. In addition to thepolicy framework, we also need to increasethe role of TSOs in investment planningand decision making.”

A changing TSO-DSO relationship

“All these changes call for a newrelationship between TSOs and DSOs,”Oettinger stressed. “This relationship is thevital link in the chain between suppliersand consumers. Consumers are no longerthe ‘end of the line’. In fact, the energysystem needs them to become active. To help the system when it is stretched. If this link is weak, our whole system is weak.”

In conclusion Oettinger observed: “Allplayers in the energy market have to adaptas we tackle the challenges to our energysystem, find new ways to enhance securityof supply and build up a competitive andfully interconnected energy market. In thisnew world, TSOs face unprecedentedchallenges. The responsibilities of TSOsare massive. The expectations thatsuppliers and consumers have of TSOs are phenomenal. The influence of TSOs in our energy changes is vital. We needadaptation. We need a more strategicapproach. We need a more internationaloutlook, beginning with full cooperationwithin the ENTSOs.”


“If we look at investments, around200 billion euros are needed toupgrade Europe’s gas and electricitygrids by 2020. The economicsituation is not on our side. So wehave to make sure our policies makeup for this as far as possible.”

As well as measures such as dispatchingrules, Italy’s federal energy authority isplanning a capacity market to subsidisefossil-fuelled back-up electricity generationto be in full operation by 2017.Transmission system operator Terna isexpected to hold the first auctions to strikeoption contracts with electricity generatorsbefore the end of 2013, as the capacitymechanism proposal requires a four-yearlead time between the auctions and thecontracts coming into force.

Interconnector initiatives

Italy has developed a number ofinterconnector initiatives to boostconnections with neighbouring countries.Tambone focused on two of the latestinitiatives. Contracts have been assignedfor the 1,000MW subsea connector withMontenegro and it is expected to be inoperation from 2017. But the project needsto fit with the changed electricity demandand supply picture in Italy. Tambone said:“Things are going well but today our worryis that this 1000MW input could stronglyaffect our system. So now we are havingdiscussions to examine future flows, to seeif reverse flows could be feasible and toconsider how to better allocate costsconsidering the impact of the project onthe Balkan market which will be integratedvery soon in the European region.”

The Trans Adriatic Pipeline (TAP) willbring Caspian gas to the EU throughGreece, Albania and into Italy withcapacity also for reverse flows. Tambonecommented: “We have carried out for thefirst time the so-called ‘market test’ andthat in principle was very positive.” But the economic crisis in Greece as well as reduced Italian demand, has changedthe market context: “In Italy, I don’t knowif we can afford the ten billion cubicmetres import, so this is something that we put certain conditions on in order tomake this project feasible both from theinvestor side and for the countries thathave to receive this. A final investmentdecision will be declared hopefully by theend of 2013.”

Euro-Mediterranean integration

Finally, Tambone highlighted MEDREG(the Association of Mediterranean EnergyRegulators): “MEDREG started in 2006and brings together all the regulators forthe south and north shore of theMediterranean. There is a lot of interest for the future in this area of course andMEDREG is getting more and morerelevant. We are signing a CooperationProtocol concerning the development andintegration of the Euro-Mediterraneanenergy sector with Med-TSO (Associationof the Mediterranean Transmission SystemOperators). This is the first good step inpossible cooperation and paving the wayfor future investment.”

The problem of loop flows

Matti Supponen, Policy Coordinator,European Commission focused theroundtable’s attention on the problem ofloop flows. Vital electricity interconnectorand other transmission capacity in parts of Europe is being reduced because ofloop flows. These are caused wheninfrastructure bottlenecks cause electricityto take a longer loop to flow to where it is needed.

For example, bottlenecks in Germany areleading to significant loop flows throughthe networks of neighbouring countries.Similar flows occur around the majorconsumption region of northern Italy. The German loop flows have beenreinforced by the sharp increase in powergeneration from renewable energy sourcesin Germany.

Neighbouring countries have complainedthat this is unfair. But the solution is notproving easy as Supponen observed: “Oneof the favourite options is to install phaseshifters at this border, to alleviate the loopflows and to bring the physical flows andthe commercial flows closer together. But this is not working very well. A keyissue is that there is no agreement aboutwho has the button to control these phase shifters.”

A look at some currentchallenges

Fabio Tambone, Head ofInternational Affairs, ItalianRegulatory Authority, updatedroundtable participants onsome of the importantdevelopments affectingtransmission networks in Italy. Renewable generationhas grown to a remarkable 42% share of the country’selectricity. This is posing theregulatory challenge of howbest to strike a balancebetween security of supply and competition objectives,without additional costs forelectricity tariffs.


National vs European solutions

Another proposal, put forward byproponents in the Czech Republic andPoland, is to split Germany into pricezones, or a north and south price zone,and to separate Austria from the common German/Austrian price zone. But Supponen pointed out it is a widerproblem: “It is important to say that it isnot only Germany who is causing loopflows. In fact the biggest loop flows arefrom France, a lot of which ends in Italy.There are loop flows between Norway and Sweden and the Baltic states arecomplaining of loop flows coming fromclose to St Petersburg and passing over the whole Baltic area, which they cannoteasily control.”

The French loop flows are somewhatdifferent from the north-southphenomenon in Germany and do notgenerate as much dissatisfaction.Supponen said: “One obvious solution is toincrease the capacity of the transmissiongrid and this is exactly what is planned inGermany.” But, because this is seeking tosolve “an international problem with anational solution,” Supponen suggestedthat “this is perhaps the second bestsolution. The best solution might be tohave all these neighbours discussing andthen agreeing on something that wouldlook like an integrated grid in the centre of Europe.”


42%is the remarkable share of the country’selectricity that renewable generation has grown to in Italy. This is posing theregulatory challenge of how best tostrike a balance between security ofsupply and competition objectives,without additional costs for electricitytariffs.

1. How many TSOs are needed in the oneEuropean market?

Berge observed: “We still have more than30 TSOs in Europe, regulating their ownkingdom, their own national areas. I thinkit’s time that we start reflecting could wespeed up cooperation to have themworking as one TSO pan-European. Could we unbundle them from theirnational interest and get them working asa European entity? We are still working innational borders and have price areas andprice zones by national areas. But howmany TSOs do we really need?”

2. Is a national TSO model required?

“In an integrated European electricitymarket, why are prices set by nationalborders?” asked Berge. He continued: “Are the constraints by accident always onthe border? I don’t believe it. We have thisnational playing field because TSOs, arerelated to national government, nationalexchanges and national regulators? Is thisthe way we should go in the future? I thinkthey should be European, but there’s moreneeded for that. Regulation should bemuch more European. ENTSO-E and other moves are a good start. But we have to make further steps in that area.The biggest hurdle is probably the nationalgovernments. But generation adequacy isnot a national issue anymore. A blackout in Germany has consequences in Rome and Paris. We are working crossborder and the denial of this is denying the factual situation.”

3. Considering the volume of thedecentralised power generation and thegrowth of ‘prosumers’, is the role ofbalancing the grid shifting from the TSOto the DSO?

“How do we connect new renewables up to the grid? It is not at TSO level anymore.How are we going to cope with that?”asked Berge. “We’ve got areas in Germanywhere the production of households attimes are seven times their consumption.That means on a sunny day that you haveto export but the grid is not there to exportthis surplus. It is not worthwhile to put asecond grid in. We will not stop thisdevelopment. On the contrary, we shouldnot be seeking to stop it but we have tohave adequate tools and we don’t at themoment. I accept TSOs have a

responsibility for making sure the grid isbalanced across the whole country but youcannot afford to balance at the level of,say, the state of Bavaria or, even worse, a street level. Nonetheless, if we want to accommodate this new world, thisquestion has to be on the table. It is asystem issue. There is a huge challengebetween the TSOs, the DSOs, the suppliersand even the generators, to resolve this.We have to cooperate.”

4. Are interconnectors created tocompensate for different national non-compatible energy policies?

Berge observed that the role ofinterconnectors at present is often toaccommodate the impact of differentnational energy subsidies. For example,the surplus from peak renewablegeneration in Germany gets exported: “So we have interconnectors in order to get the subsidies paid on these renewablesexported to the neighbouring countries,while the populations in the neighbouringcountries are enjoying the Germansubsidies paid by the retail customer. Do we need interconnectors for that? Are the differences in policy a basis forbuilding interconnectors? I stronglyquestion this. If we are not willing todevelop a more harmonised policy, then Idoubt the value of interconnectors.”

5. Is a capacity market needed and whatis the role of TSOs in such a market?

Berge observed that today’s marketarrangements for renewables fail to valuecapacity: “Renewable output is dumped on the market and gets priority access but,if it is not there, there is no obligation onthe renewable generator. No capacityrequirement is needed. It becomessomeone else’s problem. That gives a veryclear economic signal that the capacity isworthless. The solution is probably tovalue the capacity, which means that if therenewable producer withdraws becausethe wind is not there and the sun is notthere, he has an obligation to ensure thecapacity. He could buy that; there are gasplants enough – they are almost free ofcharge at this moment! Why don’t we havea solution where capacity is guaranteed?TSOs could play a very constructive role inthat. Would it not be starting a capacitymarket by giving every supplier theobligation to have the capacity which hehas sold also available? It is normalpractice that if you sell something, youshould have further stock of the productwhich you sold. This is not the case today.Nevertheless we are calling this a market. I don’t call it a market.”

Talking points

Hans ten Berge, SecretaryGeneral, Eurelectric roundedoff the roundtable with fivekey questions and his ownthought-provoking viewpointfor participants to consider.


and not without a smart grid with newcapacities and more storage facilities. So we need a real speed limit and morecontrol before investments in renewabletechnologies.

If you want an integrated market, doesn’tthat ultimately mean bringing everyonetogether and a unified price?

Hans ten Berge, Secretary General,Eurelectric: Let’s be clear, a unified marketfor me is not a market where we have oneprice. There are constraints in the system.There are benefits in certain areas wherethe electricity generation would be muchcheaper than in other areas. A unifiedmarket is where the transport is possiblefrom one to the other area and, if thetransport is not there, we can benefit from the local advantages or pay for thedisadvantages in order to create theincentives to compensate for them. I amconcluding that that is not the case if youtake the national borders as the things that determine the market. I would saylet’s go for where the real constraints areand make sure that locational signals arethe basis for the investments. We don’thave that now. We’ve got the highestconcentration of solar panels in the BlackForest, not for the sun, for the subsidies!

For California, you talked about activeflexible capacity procurement anddynamic transfers. What do you intendthere? Is it an organised mandatorysystem, for example, or a wholesalemarket based system?

Nancy Saracino: It’s actually acombination. One of the dynamics inCalifornia and really across the country isthe capacity markets that have beendesigned have started to create conflictswithin the states where the states aretrying to control the generation resourcesand are concerned with the interfacebetween federal control and state control.So, in California, since we haven’t yetdesigned an organised capacity market,we’re working with our state regulator tocreate a combination of a bilateral capacityarrangement with certain percentages ofprocurement going forward three yearswhich offers enough certainty to providefor new types of resources. Then the ISO is going to develop a backstop auction andthat will be a market-based mechanism tobackstop the percentages that have notbeen procured through the bilateralarrangements that are overseen by thelocal state public utilities commission. So, that’s the framework that we’reworking on. It remains to be seen whetherwe’ll be successful and it’s still in theprocess of development and approvalthrough the regulatory bodies.

Q&AHow can we get national and Europeanenergies working better together so thattheir approaches are better harmonised?

Günther Oettinger: We have the ambitionto Europeanise energy policies and to linkenergy policies to industrial policies and toclimate change policies. National playersare relevant but are often not coherent. To add together 28 or more nationalenergy strategies is not a European picture.What we need are concrete projects –projects of common interest – and to viewcooperation in bigger European regions –north-west, south-west, central Europe,Baltic region. We have some progress andmy hope is that energy process for gas andelectricity will support our strategy toEuropeanise in the best manner. We need a European gas and power strategy and a common European infrastructure orenergy prices in competition to the US, to the Middle East, will be at a bigger and bigger disadvantage for our industry. So the best driver is the too high energyprices as we have at the moment.

Do you think the impact of renewableenergy on TSOs and the working of themarket are adequately addressed on aEuropean level?

Günther Oettinger, European Commissionerfor Energy: Up to now we have 28 countrysupport schemes in parallel. This was ok inthe beginning when renewables had asmall share. But now renewables have abigger share. We need a more coordinatedand coherent approach and, more andmore, a European support scheme. This iswhat we are developing, with someguidance, with a clear comment whichcapacity mechanisms are acceptable andwhich are not acceptable. Twenty eightmechanisms in parallel means a fragmentedmarket and is contrary to the functioningof an internal market and so we are justnow in a window of opportunity to changethis – coming from national levels andgoing to European levels…. Member stateshave to play a constructive role thereforeor we all will fail.

How do you respond to the problem of abig growth of renewables in a marketwhere demand is going down?

Günther Oettinger: We need a commontarget…. (By knowing) which renewableshare will be generated in 2030, we haveclarity for all investors and for ourinfrastructure as well. My idea is thattarget must also mean limit. And so weneed a speed limit for next steps for moreand more renewables, a smart speedlimit… You need a clear priority – firstgrids, second storage capacities andafterwards new generation capacities,


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The future of TSOs â€“ electricity and gas highways

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