The regulatory regime applicable to electricity interconnectors with third countries

The ambitious greenhouse emissions reduction targets to which the European Union (EU) has committed require that all available decarbonisation options be considered, including the opportunity to expand the geographical scope for the siting of renewable-based electricity generation to regions outside the EU. Some of such regions, for example Northern Africa, are typically characterised by a better endowment of wind and solar resources and might therefore be capable of providing electricity from renewable energies at competitive prices in the future. However, relying on generation located in third countries might also raise some concerns related to security of supply and external energy dependency.

In this context, some electricity interconnection projects are being considered – under both the regulated and unregulated regimes – between countries in Northern Africa and EU Member States, aiming at a deeper energy sector integration.

In particular, electricity Interconnectors with third countries seem currently to be outside the scope of the EU Directive and Regulation on the Internal Electricity Market^[1]. Therefore, the provisions contained in these acts regarding third-party access and tariffs, unbundling, the destination of congestion income and capacity allocation, designed for interconnectors between Member States, do not apply to interconnectors with third countries.

The regulatory regime for Projects of Mutual Interest (PMIs) introduced by the revised TEN-E Regulation[2] is unclear, as it is based on a mutatis mutandis application of a regime defined for Projects of Common Interest (PCIs), which are infrastructure project located within the EU, to which the provisions of the EU Directive and Regulation on the Internal Electricity Market do apply. However, it seems that interconnectors with third countries can apply for PMI status and, in fact, several interconnectors with third countries have been granted such a status[3].

Going forward, two possible models can be foreseen regarding the transport infrastructure needed to import electricity, and, in particular, renewable-based electricity, from third countries into the EU:

• the ‘interconnector’ model, in which a cross-border transmission infrastructure is developed independently from the deployment of renewable-based electricity generation capacity in the third country. The interconnector is developed by TSOs or by other project promoters;
• the ‘integrated commercial project’, comprising a renewable-based generation plant, or a number of such plants connected to a dedicated renewable electricity ‘island’ network in the third country, but not connected to that country’s network[4], and an interconnector linking the plant or the dedicated renewable ‘island’ network to the EU network and market. The renewable-based generation plant(s) and the interconnector are developed, owned and operated by a single commercial entity or by several commercial entities operating in coordination.

These models could become blueprints for the regulatory framework to be applied to (inter)connections between the EU and third countries. Their implementation would require an agreement between the EU and the third country concerned.

The business model and the way in which the interconnector model can operate greatly depend on the organisation of the electricity sector in the third country and two access regimes and remuneration approaches can be envisaged:

• the interconnector could be subject to third-party access requirements (similar to those applied to interconnectors between EU Member States) and remunerated through charges levied for its use and set or approved by the regulatory authorities in the third country and in the neighbouring EU Member State; or
• the interconnector could be developed as a ‘merchant’ initiative. in this case, it would not be subject to any third-party access requirements and it would not be remunerated by charges set or approved by the regulatory authorities, but rather from the commercial revenues obtained from its use.

In the case of the ‘integrated commercial project’, the interconnector included in such a project would be used exclusively to export to the EU the electricity produced by the generation plant or plants located in the third country and included in the project, and connected to the interconnector, directly or through a dedicated renewable ‘island’ network. Therefore, it could more aptly be referred to as a (long) ‘connector’ of a (remote) power plant, or several power plants, to the EU network.

Similar to exempted interconnectors between Member States, it could be envisaged that, after an initial period, a merchant interconnector with a third country or the connector included in an integrated commercial project transition towards the regulated interconnector model. Such a transition would clearly require that the connector developed under an integrated commercial project be connected to the electricity network of the third country. The timing of this transition should allow the project promoter(s) to recover the investment, including an adequate return on the invested capital reflecting the level of risk of the project.

Moreover, the promoter(s) of an integrated commercial project might want to sell the renewable-based electricity produced in the third countries to offtakers located beyond the neighbouring EU bidding zone (i.e., the bidding zone in which the (inter)connector joins the EU network). This would involve flowing this electricity from the neighbouring EU bidding zone, where it is delivered by the (inter)connector, to the bidding zone(s) in which the offtaker(s) are located and therefore crossing bidding-zone border(s). in this situation, the project promoter(s) would be exposed to the risk related to the uncertainty and variability of the price differential(s) between the bidding zones in which the offtakes are located and the neighbouring EU bidding zone. Such a risk could be hedged by using physical or financial transmission rights. However, at present, only year-ahead long-term transmission rights are allocated in the EU, which is far too short a period in comparison to the length of any PPA required to support an integrated commercial project.

Our recommendations

On the basis of the considerations outlined above, the following recommendations may be formulated as a contribution to create a conducive regulatory framework for electricity interconnectors with third countries:

• It would be valuable to clarify how the TEN-E Regulation, and in particular its regulatory provisions, applies to PMIs, beyond the current approach based on a mutatis mutandis application of provisions primarily developed for PCIs.
• The two models proposed above – the interconnector model, in the regulated and merchant variants, and the integrated commercial project – could become the blueprints for the regulatory regime applicable to electricity interconnectors with third countries, subject to the agreement of such countries.
• A merchant interconnector and the connector included in an integrated commercial project might transition towards the regulated interconnector model, after an initial period, which should allow the project promoter(s) to recover their investment costs, including an adequate return on the invested capital.
• The possibility of acquiring cross-zonal long-term transmission rights is essential for project promoter(s) to be able to sell the renewable-based electricity produced in the third country to offtakers located beyond the neighbouring EU bidding zone. These transmission rights should extend over a horizon which covers a significant portion of the period over which the investment costs of the merchant interconnector or of the integrated commercial project are recovered. At present, long-term transmission rights are only available for the front year. The European Commission could consider requesting TSOs to be ready to issue long-term (obligation-type) financial transmission rights (FTRs) with a longer timeframe (e.g. 8-10 years) for part of the expected cross-zonal capacity over the same time horizon. The allocation of such longer-term FTRs should be backed by a regulatory guarantee, provided by the regulatory authorities, that the TSOs will be compensated for any shortfall in congestion income with respect to the payments due to the holders of such FTRs.

A more comprehensive assessment of the current regulatory framework for electricity interconnectors with third countries and a more detailed illustration of the two models outlined above can be found in Alberto Pototschnig and Leonardo Meeus, The regulatory regime applicable to electricity interconnectors with third countries, Research Project Report, Florence School of Regulation, July 2025.

[1] Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (recast), as emended by Directive (EU) 2024/1711 of the European Parliament and of the Council of 13 June 2024 amending Directives (EU) 2018/2001 and (EU) 2019/944 as regards improving the Union’s electricity market design, and Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), as amended by Regulation (EU) 2024/1747 of the European Parliament and of the Council of 13 June 2024 amending Regulations (EU) 2019/942 and (EU) 2019/943 as regards improving the Union’s electricity market design.

[2] Regulation (EU) 2022/869 of the European Parliament and of the Council of 30 May 2022 on guidelines for trans-European energy infrastructure, amending Regulations (EC) No 715/2009, (EU) 2019/942 and (EU) 2019/943 and Directives 2009/73/EC and (EU) 2019/944, and repealing Regulation (EU) No 347/2013.

[3] The sixth list of Projects of Common Interest (PCIs) and PMIs[3] in 2023 includes the following interconnectors with third countries: (i) Interconnection between Sicily (IT) and Tunisia node (TN) [currently known as “ELMED”] (already included in the fifth PCI list); (ii) Interconnection between Zeebrugge area (BE) and Kemsley, Kent (UK) [currently known as “Cronos”]; (iii) Interconnection between Emden areas (DE) and Corringham, Essex (UK) [currently known as “Tarchon”]; (iv) Interconnector between Subotica (RS) and Sándorfalva (HU); (v) Interconnection between Wadi El Natroon (EG) and Mesogeia / St Stefanos (EL) [currently known as “GREGY Interconnector”]; (vi) Multi-purpose interconnector between Modular Offshore Grid 2 (BE) and Leisten (UK) [currently known as “Nautilus”] (already included in the fifth PCI list); (vii) Multi-purpose HVDC interconnection between Great Britain and the Netherlands [currently known as “LionLink”].

[4] Although a variant of this set-up could be considered in which the plant or the island network in the third country are also connected to the electricity network in that country, in order to inject some of the renewable-based electricity into such a network.