Regulatory Investment Risk Incentives for Project of Energy Community Investments in  the WBs

Part of Report: Energy Market and Investments Opportunities in Albania

Dr Lorenc Gordani | Sunday, August 16, 2015

On 17th April 2013, the EU adopted Regulation No 347/2013 on guidelines for “TEN-E Regulation”. The TEN-E Regulation has been supplemented with new financial instru-ments facilitating access to long term financing of eligible PCI by providing debt facilities into projects. Then, on 14th October 2013, the EC adopted a list of 248 key energy infra-structure projects, including also third countries’ projects, among others such involving Energy Community Contracting Parties (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Ukraine).

In the same direction, on 6th October 2011, the EnC Ministerial Council approved the es-tablishment of a Strategy TF mandated to “elaborate a Regional Energy Strategy, including a special part on Regional Power Development and Investment Plan aiming at promoting invest-ments.” In the conclusions of its 33rd meeting of 18th June 2014, the PHLG requested full in-corporation of Regulation 347/2013 into the Energy Community acquis at the Ministerial Council meeting in 2015.

As reported by the ACECR along the second week of august 2015, the 13th Ministerial Council Meeting on 16 October 2015, that will take place in Tirana, Albania, have an-nounced the following with the Decision D/2015/02/MC-EnC on the implementation of Regulation 347/2013. Notwithstanding, in its Risk Related Regulatory Investment Incen-tives for Projects of Energy Community Interest, Recommendation Paper, from the April 2015, ECRB has consider necessary the elaborate of the certain aspects of the regulatory treatment of PECI.

In specific, ECRB notes that several issues remain to be resolved by the EnC institutions in order to establish a sustainable regional mechanism supporting infrastructure invest-ments in the region. The dynamics of adjustment of the PECI list in synthesis state: cur-rently it is not clear if and when the PECI list will be reviewed when in EU the PCI list is renewed in intervals of two years. Treatment of the electricity generation projects in the second PECI list. Treatment of CBA. Identifying applicable debt and equity financing sources/mechanisms for PECI.

Then at its meeting of 15th April 2014, the ECRB decided to develop a toolbox on regulato-ry investment incentives to be used by the NRA depending on national specificities and a common methodology for project risk evaluation. In regard, it was followed with a rapid presentation of the national practices of risk evaluation in the EnC CP and then with the recommendation on a common methodology for risk identification. For concluding with a status review of applicable investment incentives in the CP, highlighting the critical barri-ers for introducing investment incentives and presents a toolbox which may be used by NRAs to define applicable investment incentives.

As wide accept the general “financial climate” for energy networks infrastructure projects, is significantly influenced by the applicable regulatory framework. Being subject of price regulation, electricity and natural gas transmission companies reimburse their capital and operational expenditures based on pricing mechanisms (price controls) developed by the NRA. Normally, well-designed price controls should ensure recovery of all prudently in-curred costs, including investment projects costs, taking into consideration at least the av-erage systematic risk of the TSO’s investment portfolio via the regulator’s estimate of the cost of capital, but also other risks depending on the features of the applied model of price regulation.

The ECRB recognizes that the PECI promoters may be exposed to additional non-controllable risks that were not observed or accounted for by the NRA while setting the price controls, and that such risks may adversely influence both the project promoter’s de-cision to invest and the lenders perception of the bankability of the project. Then the ECRB proposes the following approach to risk identification and assessment to the Con-tracting Parties NRAs.

First, using a transitional methodology for TSO’s portfolio risk identification and assess-ment until implementation of the TEN-E Regulation in the Energy Community law, which follows the ACER methodology to the extent possible. In more using the ACER risk eval-uation methodology developed by ACER in line with Article 13.5 of the TEN-E Regula-tion once the TEN-E Regulation is implemented by the Energy Community Contracting Parties.

In regard the Transitional methodology for risk identification and assessment ECRB con-siders that the process of identification and assessment of TSOs project portfolio should include the following steps: Availability of information on project portfolio risks; Identifi-cation of the nature of risks from a regulatory point of view; Risk mitigation measures by TSOs; Assessment of systematic risk and definition of cost of capital; Risk mitigation measures already applied by NRAs.

Regard a summary of national practices regarding risk mitigation, regulatory measures and monetary reward or penalty schemes, in the analysed markets, the rate-of-return, price cap and revenue cap regulation are implemented. Rate-of-return regulation is nor-mally performed on yearly basis, while in the case of incentive based regulation the reve-nues or prices are capped for different periods, namely three or five years.

In specific on the electricity investment, are applied the following regulatory systems: Rate-of-return regulation in four jurisdictions (Bosnia and Herzegovina, Croatia, Serbia, Ukraine); Revenue cap in four jurisdictions (FYR of Macedonia, Kosovo*, Moldova, Mon-tenegro); Price cap in one jurisdiction (Albania). And in natural gas, are applied the fol-lowing regulatory systems: Rate-of-return regulation in four jurisdictions (Bosnia and Herzegovina, Georgia, Serbia and Ukraine); Revenue cap in three jurisdictions (Croatia, FYR of Macedonia, Moldova).

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