Identifying Benefits and Allocating Costs for European Cross-Border Infrastructure Projects

Abstract

Cross-border investment projects having a European interest are currently undertaken country by country with insufficient cooperation between all actors impacted by such a project. The asymmetry of cost allocation and benefit distribution of cross-border infrastructure plus the presence of economic externalities have lead to a suboptimal situation at the EU level. A cost-benefit analysis would be an interesting tool to enhance the scope of studies of cross-border investments. A cost-benefit analysis is more suitable for undertaking a country to country cross-border analysis. An extra complexity arises when one wants to consider a full EU infrastructure package. TSOs should invest the congestion rents generated in cross-border trade or lose them (“invest it or lose it”). TSOs not interested into cross-border efficient investment projects should transfer the congestion rents to a “European Interconnection Fund” to finance other EU relevant interconnection projects. The existing “Inter-TSO Compensation” mechanism should be either replaced or suplemented by an ex ante instrument based on a cost-benefit analysis. This welcome upgrade should explicitly take into account the economic externalities of the new investment projects. ACER could play a more powerful role in approving investment plans. EU legislation could be revisited to permit this. An interesting alternative to the today’s European system operation frame would be to create an EU “Independent System Operator” (EU-ISO) which would have access to the relevant network and operation information that ACER does not get. That EU ISO could play an active role in the studies contributing to European cross-border infrastructure planning.