Merchant Interconnection in the Internal Energy Market: Implications of the Network Code on Capacity Allocation and Congestion Management

Sammanfattning: This study investigates the impact of the Network Code on Capacity Allocation (CACM) on the merchant approach to interconnector development. It also situates CACM in the context of the EU, analysing the progress it makes towards a functioning single market for electricity across European Member States. Known as the Internal Energy Market (IEM), the EU has worked to achieve a single market for over 20 years, with a series of legislative reforms beginning in 1996. With the development of interconnection recognised as vital to this project, it is important to understand the impacts of new legislation. This thesis thus uses a literature review, a legal approach to understanding the regulatory text, and expert interviews to both develop an understanding of the context of interconnector development and an understanding of what may change as a result of CACM. The study finds that CACM is likely to increase costs and lead to worsened commercial conditions for merchant interconnector developers. Ambiguity surrounding methodologies for capacity calculation and cost recovery may make it hard for developers to model a long-term business case, leading to fewer interconnector projects moving forward. This would be detrimental to the EU, with a lack of cross-border transmission capacity long identified as a barrier to a functioning IEM.