On 19 October 2011, the European Commission (the “Commission”) published a proposal to fund €50 billion worth of investment in the European Union’s (“EU”) transport, energy, and digital networks for the period from 2014 to 2020, with a view to strengthening links across Member State borders. Amongst the measures that were adopted by the Commission are a draft regulation to establish the Connecting Europe Facility (the “CEF”), the terms for the Europe 2020 Project Bond Initiative (the “Project Bond Initiative”), and a proposal for a regulation on guidelines for trans-European energy infrastructure (the “Energy Infrastructure Guidelines Regulation”).

Key Features for the Energy Sector

  • The proposals identify a number of trans-European energy infrastructure priorities to be met by 2020 in order to satisfy the EU’s energy and climate policy objectives of competitiveness, sustainability and security of supply.
  • The proposals set out guidelines for identifying ‘projects of common interest’ which will be eligible for funding from the EU and receive favourable regulatory treatment, with specific requirements for energy projects.
  • To assist with the financing of the CEF, the Commission has adopted the terms of the Project Bond Initiative, which will allow projects to raise bonds under a programme planned by the EU and the European Investment Bank.

Energy Infrastructure Priorities

The proposed CEF regulation identifies a list of 11 priority corridors and areas in the field of energy, including:

  1. a ‘Northern Seas offshore grid’, which is an integrated offshore electricity grid in the North Sea, the Irish Sea, the English Channel and the Baltic Sea to transport electricity from renewable energy sources and increase cross-border electricity exchange;
  2. a ‘Southern Gas Corridor’ to transport gas from the Caspian Basin, Central Asia, the Middle East and the eastern Mediterranean to the EU in order to provide an alternative source of gas supply;
  3. the creation of the first electricity highways as the starting point for an electricity highways system across the entire EU; and
  4. preparation for the construction of CO2 transport infrastructure between Member States in light of the deployment of CO2 capture and storage.

The Energy Infrastructure Guidelines Regulation also adds a priority oil corridor focussing on the interoperability of the oil pipeline network in Central Eastern Europe to increase security of supply and reduce environmental risks.

‘Projects of Common Interest’

The energy sector is expected to receive a €9.1 billion boost as a result of the CEF, which will be dedicated to the funding of ‘projects of common interest’. In the energy sector, these projects should meet the following general criteria:

  1. be necessary for the implementation of the priority corridors and areas discussed above;
  2. display economic, social and environmental viability; and
  3. involve at least two Member States, either by crossing borders, or by being located on the territory of one Member State and having a significant cross-border impact.

Additional criteria have also been set out for electricity transmission and storage projects, gas projects, electricity smart grid projects, oil transport projects, and CO2 transport projects.

Selection of a project of common interest will be a two stage process. Firstly the project promoter will need to submit its proposal to the relevant regional group, which will draw up an initial list. Then, a final decision on the list will be taken by the Commission. The deadline for adoption of the first list is proposed to be 31 July 2013 and the list would be updated every two years.

Projects of common interest in the energy sector will be eligible for EU financial assistance in the form of (i) grants for studies and/or works and (ii) financial instruments in accordance with the CEF. It should be noted that designation as a project of common interest will not automatically create an entitlement to funding; projects selected will need to apply for funding separately and prove that they are commercially not viable. If an application for funding is successful, the EU will contribute up to 50% of the costs for studies and works, and in exceptional circumstances up to 80% if a project is (i) crucial for regional or EU-wide security of supply or solidarity, (ii) requires innovative solutions or (iii) has cross-sector synergies. However, projects of common interest in the energy sphere will automatically benefit from streamlined permit granting procedures, as well as favourable regulatory treatment where they focus on electricity and gas.

The Project Bond Initiative

Alongside the CEF proposals, the Commission has announced plans to implement the Project Bond Initiative in order to provide a catalyst for the rejuvenation of financing in the infrastructure sector from the debt capital markets, and in the hope that the bond market will attract longterm, risk averse investors. Bonds would be issued by infrastructure project companies and serve to complement the partial coverage of project risk by EU and European Investment Bank funds. The Project Bond Initiative will be one of a number of risk-sharing instruments that the CEF will be able to draw upon to attract private finance in projects.

As the EU budget for 2014-2020 still requires approval by the European Parliament and Member States, the Commission plans to implement a ‘pilot phase’ of the Project Bond Initiative with an injection of up to €230 million from the existing 2007-2013 budget. The Commission hopes that the implementation of this pilot phase will mobilise up to €4.5 billion in investment from the private sector.

The pilot phase would be managed by the European Investment Bank and focus on 5 to 10 projects in one or more of the three key areas of transport, energy, and broadband. Particular emphasis will be placed on supporting projects which require refinancing after the construction phase or which have reached a relatively advanced stage in the bidding and financing process.

Next Steps

The pilot phase of the Project Bond Initiative is expected to be operative from 2012. The Commission expects that the proposed Energy Infrastructure Guidelines Regulation will be approved by the European Parliament and the Council by the end of 2012 and enter into force in early 2013. This should then leave sufficient time for the first EU-wide list of projects of common interest to be finalised in view of possible financing under the CEF, which is set to go live in 2014. The Project Bond Initiative will be fully incorporated into the CEF once the CEF enters into force.