Benefit-based remuneration of efficient infrastructure investments

The energy transition calls for a rapid expansion of electricity grids at both transmission and distribution levels. Technological progress and digitalisation offer new solutions to system needs that can increase the efficient use of existing and new electricity grids while reducing lead times. New regulatory approaches are needed to ensure that network companies are incentivised to explore and deploy these new solutions. This Report expands on previous research conducted by the FSR on behalf of ACER and its proposal for a benefit-based scheme to promote efficiency and innovation in addressing system needs by electricity transmission system operators. In particular, the Report provides additional implementation details of such a scheme and its most relevant design choices. It also offers an overview of regulatory practice in Europe, the USA and Australia with regard to the promotion of innovation and efficiency in transmission investments. Three sample cases illustrate how the proposed scheme could be implemented in practice. Finally, the Report summarises the results of a series of consultations, held with national regulatory authorities, transmission system operators and other stakeholders, where feedback was sought on the general features of the scheme and its main implementation aspects. While the implementation of the proposed scheme would not be without challenges, the Report suggests that those challenges are not much greater than those which are posed by the proper implementation of more traditional incentive-based mechanisms.