Publication
Europe is not on track for its 2030 interconnection targets
Could reform unlock the next wave of projects?
Related expertise
For more insights, please visit our Energy and Utilities Hub
Publication
Could reform unlock the next wave of projects?
Interconnectors are becoming critical to two-way flexibility for a renewables led system, as energy systems become more interconnected and increasingly shaped by renewable generation.
Their role is no longer limited to facilitating imports during periods of high demand; they are now also critical in enabling exports, reducing grid constraints and supporting overall system resilience.
This matters all the more as renewable generation continues to grow while grid expansion and reinforcement have lagged behind. In Europe, this is contributing to connection queues, curtailment and wider system costs, reinforcing the importance of transmission, distribution and interconnection infrastructure in supporting the energy transition.
However, Europe is not on track for its 2030 interconnection targets, despite interconnectors being vital to achieving security of supply, competitiveness and environmental sustainability. The scale of the challenge is substantial, with Europe expected to reach 167 GW of cross-border electricity exchange capacity by 2030 and longer-term scenarios pointing to 318 GW by 2040, highlighting the need for for substantial additional capacity build over the coming years.
For sponsors, lenders and developers, the challenge is not just identifying the need for new capacity, but getting projects structured, financed and delivered in a changing regulatory environment.
From a financing perspective, interconnectors present a complex risk profile. Although they are transmission assets, their revenues are often driven by congestion charges, exposing projects to market developments and price volatility on both sides of the border. In the UK the two principal revenue models remain merchant and cap & floor — with the merchant model exposing developers to full market risk, and the cap & floor model providing a minimum revenue floor and maximum cap, while still presenting challenges for more complex assets.
For later-stage or more complex projects, development and construction risk remains challenging, particularly where there are no regulated returns during these phases. Recent pressures have made this more acute, including supply chain constraints, increasing capex costs and the need for some projects to commit significant amounts of capital ahead of final approvals in order to secure factory slots and meet delivery timetables.
As governments and regulators look for ways to accelerate delivery, it’s essential to understand how any new models may affect project structuring, financing and execution.
At the same time, regulatory reform is moving quickly, with DESNZ and Ofgem consultations exploring coordinated strategic planning and potential new competition models for interconnector delivery. In this context, the RAB model is gaining attention as an alternative, particularly because it can support more stable regulated revenues and, in some cases, allow for payments during construction — improving funding availability, lowering the cost of capital and enhancing overall bankability.
With decades of experience advising on complex electricity transmission, distribution and interconnector projects across Europe, we support clients across the full asset lifecycle — from development and regulatory advisory through to financing, project execution, and acquisitions and disposals.
See our latest European Transmission & Distribution credentials flyer for selected experience across grid infrastructure, interconnectors and financing matters.
For more insights, please visit our Energy and Utilities Hub.
