Heiko Ammerman: “Market-based development has to be at the heart of the North–South Corridor”

Heiko Ammerman: “Market-based development has to be at the heart of the North–South Corridor”

The recent report by Roland Berger, with contributions from CEEP experts, analyses specific energy transmission projects, which together constitute the backbone of the North–South Corridor. Heiko Ammermann, the paper’s co-author, spoke to the CEEP Report following the report’s launch in Krynica, on what is needed to make these projects happen.

In your recent report, you recommend establishing a regional North-South Corridor co-ordination platform. How will this body support the project’s development and completion on time?

We have found that what is missing to make the Corridor happen is an effective, operational working body which tackles political, regulatory, and financial roadblocks at the same time. To get projects off the ground, we need to bring together the relevant stakeholders, and make sure everybody does their ‘fair share’. Therefore, we propose a platform which advances the corridor on two different levels. On the policy level, it will work towards creating investment-friendly regulatory and political frameworks. This includes making available public financing for strategic Corridor projects with a less favourable business case. On the project level, the platform will provide practical origination support on a case by case basis. It will support feasibility studies, flesh out project proposals with the responsible TSOs, and match projects with potential financiers to realise the Corridor’s implementation step by step.

Based on your analysis, there appears to be a gap between market-based financing potential and aspirations underlying the Corridor. How should this balance be tipped?

This gap stems from the fact that certain projects in the Corridor mainly make sense from a strategic, or even a geopolitical security of supply perspective, whilst their commercial viability is limited. It can be argued that for some of these projects, there is a valid case for public funding support. Given the systemic importance of the Corridor for the Central European region, and for the EU's energy system as a whole, there is certainly a role to play for the Connecting Europe Facility (CEF). In addition, contributions from national governments should also be considered, depending on the specific routing of the project.

The report calls for a preferred access to funding for the North-South Corridor. How can this aim be met?

As a first step, it is crucial to allocate a designated budget to the Corridor platform to fund early-stage planning and screening activities, such as pre-feasibility studies for promising project ideas. This will help to build a “project pipeline” of validated project ideas, which can be discussed with potential private investors. Once this “pipeline” is in place, the second step of financing support may come into play: for selected strategic projects with a limited business case, detailed financing discussions have to be started with policymakers, to determine if energy security considerations warrant public financing support, either from EU or national budgets.

You argue that the Corridor should be completed piece by piece, as supply and demand develop in relevant markets. Could that enhance the market-based business case of the Corridor’s major projects?

Market-based development has to be at the heart of the Corridor, and this is why the projects should be planned and implemented, in line with economic developments in the underlying energy markets. There are some major differences between the markets in Central Europe, so we argue that TSOs have to be ‘in the driver's seat’ for the purpose of expanding their networks and financing energy transmission infrastructure projects matching supply and demand trends in their respective markets. This ensures that the Corridor can be built step-by- step, based on individual projects which make economic sense.

According to your study, a dialogue is needed between TSOs and national regulators. What is needed to make this dialogue truly happen?

Energy regulators in the EU have a clear mandate to scrutinise TSOs' investment plans to keep tariffs in check and protect consumers against inflated energy prices. However, this focus on cost optimisation is sometimes at odds with implementing ambitious infrastructure projects. Here, we need to aim for the right balance to get things done. We believe that exchange and co-operation between TSOs and regulatory agencies needs to be made possible in certain areas, without compromising the independence and integrity of regulatory agencies. In the Corridor platform, for example, we propose bringing together TSOs and national regulators, to sort out cost allocation issues for cross-border interconnectors and avoid deadlock in key transnational transmission projects.

Heiko Ammerman, Senior Partner,
Roland Berger Strategy Consultants
Interview by Jan Jujeczka, CEEP Spokesperson

Full Report


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