Brexit and the Energy & Utilities Sector - Part 2: #TEN-E

Background

The TEN-E regulation (EC) 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009 (“TEN-E”) was put into place to overcome certain barriers with regard to the European energy infrastructure and to encourage a competitive energy market in order to meet the targets set out in the TFEU. The regulation decreases the hurdles for governments and companies in order to improve the interconnection of the gas and electricity infrastructure within the EU. Also, TEN-E identifies broad energy infrastructure priority corridors and thematic areas (e.g. smart grids).

In order to implement these goals, and in particular the priority corridors and thematic areas, the TEN-E regulation most notably introduced a structure for Projects of Common Interest (PCIs). These PCIs are selected every 24 months and have to meet certain standards; in particular they need to significantly benefit more than one EU member state. PCIs may benefit from accelerated planning and permit granting, a single national authority for obtaining permits, improved regulatory conditions, lower administrative costs due to streamlined environmental assessment processes, increased public participation via consultations, and increased visibility to investors. They also have the right to apply for funding from the Connecting Europe Facility (CEF). PCIs have access to a total of €5.35 billion in funding from the Connecting Europe Facility (CEF), the EU's €30 billion fund for boosting energy, transport, and digital infrastructure between 2014 and 2020. This funding is intended to speed up the projects and attract private investors. The decision on granting PCI status to a project is ultimately made by the European Commission and the Member States involved in the project by way of a delegated regulation. A list of current European PCIs can be retrieved here. UK currently hosts almost 30 PCIs. Once the projects are categorised as PCIs they can apply for specialised EU funding and a special procedure applies to them.

Why does it matter?

Currently, there are a significant number of British projects that were granted PCI status and receive EU funding. Nearly all UK neighbouring states are involved in these projects, including France, Belgium and Ireland. Once Brexit comes into effect the UK will no longer be part of the EU and, depending on the nature of Brexit, these PCIs could be directly affected by the UK’s departure from the union.  Furthermore, the TEN-E regulation will no longer be applicable in the UK which creates legal uncertainty regarding the areas TEN-E covers. Both implications leave the energy market and its stakeholders in great uncertainty over how these PCIs will continue to develop in the time after Brexit. In particular, private investors who have been attracted by the funding opportunities for energy and infrastructure projects which gained PCI-status may upon Brexit be deprived of their rights under TEN-E and PCIs if they have invested in a UK PCI. Such investors may secure their rights through arbitral proceedings under an investor-state-dispute according to the Energy Charta Treaty.

What changes will Brexit bring about?

The magnitude of the Brexit impact will depend entirely on the nature of Brexit. Should the UK decide to leave the EU without having come to an agreement on matters of energy, the UK would be considered a third state like any other. This could have severe consequences for the UK and its PCIs in particular.

With regard to PCIs, the following key points remain largely unclear:

Firstly, PCIs involving the UK could fail to meet the necessary criteria since some of the projects might no longer be considered necessary for the implementation of the broad energy infrastructure priority corridors and areas.

Secondly, the projects could fail to meet the broader EU benefit. In particular, bilateral projects involving the UK could lose out since they will no longer benefit two or more states. In a secondary step this will mean that these projects could no longer receive funding from the EU. Finally, and this seems to be most certain, the UK would lose any role it had in the decision making process regarding the qualification of PCIs once they leave the EU.

However, the impact of Brexit could be mitigated if the UK takes on a status of an EEA state. With regard to PCIs the involvement of an EEA state is considered to be the same as an EU state and the same applies to the benefit of a project. Thus, the UK could retain a status similar to the one it has now while the PCIs would not lose their privileged position. Naturally, this would require the EU and the UK to reach an agreement on this topic before the UK leaves the union.

A follow-up question in regard to a scenario where PCIs involving the UK retain their status after Brexit concerns the application of TEN-E in the UK from April 2019 onwards. As a regulation TEN-E is by nature applicable in all member states without a transposition into national law. As part of the UK’s departure from the EU the government will transpose all EU legislation into UK law and grant power to the competent ministers to repeal this legislation. However, it is difficult to imagine that the EU will allow the UK to stay involved in PCIs or grant PCI status to projects with a UK involvement in the absence of a guarantee that the TEN-E regulation remains applicable in the UK. Furthermore, PCIs have to comply with various benchmarks of EU legislation which would no longer be directly applicable to the UK. As the European Commission has made clear already it will not allow the UK to benefit from access to the EU if the union’s standards are not met. Thus, it remains to be seen how the UK could guarantee the compliance with EU standards should it strive to retain PCI status for some of its projects. However, as long as the status of the UK in regard to the EU energy market and the TEN-E regulation is not clarified, all stakeholders are left without a secure framework.