Electricity and gas interconnections in France. Report July 2018

Due to its geographic location, France plays a central role in building European electricity and gas markets. The CRE has supported the development of interconnections for many years. Its participation in voluntary regional initiatives on all of its borders has helped prepare the implementation of target models for use of these interconnections. It is also very much committed to creating European rules in partnership with the other European regulators. Interconnections are a structuring element of the single European energy market, and currently fully play their role, offering France a competitive and safe energy supply. The general overview is very positive in terms of the cost of energy, but also security of supply, since interconnections have helped address issues of temporary non-availability of part of the nuclear plants, or drops in availability of liquefied natural gas. However, further progress is required in particular in the operation of existing assets. The priority today must be to ensure full implementation of the measures given in the third European legislative package: this package has established a very ambitious road-map for harmonising rules for using networks, an ambition that is in line with the goal for completing the single European market. The challenges now involve the methods used to calculate capacities sold at interconnections. Although the center-west region of Europe (CWE) was a pioneer in the introduction of market coupling and then Flow Based methods, the application of this capacity calculation method since 2015 has not produced all the benefits expected: internal constraints within transmission networks have sometimes significantly limited the available import capacities, in particular during periods of strain on the system (winter 2016/2017). The CRE continues to work actively with other regulators to ensure that the methods implemented by Transmission System Operators (TSOs) enable optimised use of the interconnections. Concerning the balancing mechanisms, most of the integration as it is foreseen in the third package has yet to be implemented. France is involved in several platform projects that allow the exchange of various balancing products - manual or automatic - with different activation times. The CRE ensures that they are correctly implemented, and has been particularly involved, in cooperation with all parties to the project, in work related to the 'TERRE' project (Trans European Replacement Reserve Exchange), a regional shared platform for TSOs that have a 'proactive' approach to balancing, similar to that of RTE. Since 2015, the CRE has also been involved in working with RTE to establish a road-map, published in 2017, establishing a long-term goal for the French balancing model, and the steps for achieving it by 2021. The CRE considers that the European institutional framework, currently being revised in the framework of the 'Clean energy for all Europeans' package, must remain flexible enough and propose measures in proportion with the benefits expected. This is the case in particular for organising short-term electricity markets; some proposals would directly reduce the time that the network operator has to balance the system in near real-time. In France the network operator is able to take 'proactive' balancing actions, which are less costly in the French system. Removing this option would lead to very high transition costs, and neither the relevance nor the benefits of an alternative balancing model have been demonstrated. Regarding investments in new interconnection projects, a number of projects have been decided on in recent years that will bolster existing capacities. The Savoie-Piemont interconnection with Italy is in the final construction phase and should be operational in 2019. The IFA2 Interconnector project with Great Britain was approved by the CRE in February 2017. Given the operational and economic uncertainties brought about by the United Kingdom's decision to exit the European Union, the CRE has introduced an incentive-based regulation framework to re-balance the sharing of risks and benefits between RTE and the end consumer, in order not to expose users to high risk. Then, following the British government's activation of the exit procedure in March 2017, the CRE considered that these uncertainties rendered it unable to decide on other interconnection projects, of which there are many at this border (three are currently under consideration). For the Bay of Biscay project, a cross-border cost allocation decision was adopted with the Spanish regulator in September 2017. It aims to ensure that the costs incurred by RTE reflect the estimated level of benefits for France. The project has also received considerable European funding. The CRE has approved these projects since they provide proven and documented benefits to the European community, which exceed their costs. Acting in the interests of the end consumer, the CRE considers that decisions to invest in new projects must undergo reliable cost-benefit analyses. The aim is to spare the end user any unnecessary costs. Europe has implemented a strategy for a massive reduction of its economy's carbon footprint by 2050. European gas consumption will likely stagnate in the coming years. Within this context, any new gas interconnection must be approached with the greatest caution, to avoid generating stranded costs with infrastructures that are unused. Thus the CRE is seeking new ideas on the European regulatory framework for the development of infrastructures, for gas as well as electricity. Although it is vital to promote and support the development of projects that benefit the community, the process of selecting projects of common interest, which generally takes place several years before their completion, and while their costs and benefits are not clearly identified, creates issues if it leads to automatic confirmation of the project in the end. (author)