In the public debate over the GSI electrical interconnection, a Project of Common Interest of the EU, absolute claims are often heard about costs running into billions or supposed automatic charges on electricity bills. The reality is more complex and far more regulated, because in Projects of Common Interest, cost recovery is neither arbitrary nor one dimensional, but takes place through a specific European framework that combines market revenues, regulated tariffs and the cross border cost allocation mechanism, known as CBCA. This matters because the debate over a project such as the GSI cannot be conducted through a single large aggregate figure alone. The critical question is not simply "how much does it cost," but who benefits, what share of the cost each country bears, how much is covered by the operation of the interconnection itself, and what, ultimately, remains to be recovered through tariffs.
In Projects of Common Interest, the European regulatory framework provides that the cost of the project is first reduced by any European grants or subsidies, so that only the net amount that must be recovered through regulation remains. Recovery of the remaining cost then takes place in two stages. First, through the electricity market itself, that is, from the revenues generated by the allocation of cross border transmission capacity (congestion rents) under Regulation (EU) 2019/943, and only for whatever is not covered by the electricity market does the cross border cost allocation mechanism (CBCA) come into effect. Regulation (EU) 2022/869 on Projects of Common Interest provides that, through the CBCA, national regulatory authorities allocate the remaining cost of a project among the countries that derive a net benefit from it, and the logic is simple. The net cost remaining after grants and market revenues follows the benefit, not merely the geography of the project.
This is precisely what was reflected in the case of the Greece-Cyprus interconnection under the relevant CBCA. Based on the studies conducted at the time and the investment file submitted under Regulation (EU) 2022/869, the regulatory authorities determined that both countries derive a net benefit from the project, but to differing degrees. For this reason, the cost of the Cyprus-Crete section is not allocated equally, but is split in a ratio of 63% for Cyprus and 37% for Greece. This ratio does not mean that one country pays the corresponding amount directly in cash, nor that the entire burden is automatically passed on to the household consumer. It means that, for the cross border segment of the project, the eligible recovery cost is allocated between the two countries based on the net benefits identified in the relevant studies.
Put more simply, if for illustrative purposes the annual allowed revenue that must be recovered for a given year is taken to be €10 million, then under the simplified logic often heard in public debate of 63%-37%, €6.3 million would correspond to one side and €3.7 million to the other. However, this still does not mean that these amounts are automatically and entirely converted into a bill charge, because the contribution of electricity market revenues comes first.
The recovery method is twofold. First, the annual allowed revenue is calculated, that is, the amount the project operator must recover within a year to cover operating expenses, depreciation and a reasonable return on the regulated asset base. Next, the revenues generated by the operation of the interconnection itself are deducted, primarily from transmission capacity auctions. If market revenues are sufficiently high, they reduce the amount that remains to be recovered through regulated tariffs. If they are low, the remainder is recovered through network charges under each country's national regulatory framework. Each member state determines its own revenue requirement to cover operating expenses and its share of capital costs, after taking into account revenues from capacity sales and any subsidies.
Through this mechanism, the market bears the first part of the burden and tariffs cover only the remainder. This is precisely why absolute statements of the kind "it costs this much, so the consumer will pay this much" are misleading. European funding, the allocation of cross border transmission capacity, the country by country cost split, and the national regulatory recovery methodology all intervene along the way.
Consider a year in which the allowed revenue that must be recovered is €10 million. If the interconnection also generates €10 million through the electricity market, then the allowed revenue is fully covered by the market and nothing remains to be recovered through tariffs. In this case, the consumer benefits without any additional direct charge from this particular part of the mechanism.
If, however, the electricity market generates only €7 million, then a remainder of €3 million is left to be recovered. This amount is not allocated arbitrarily, but according to the CBCA percentage. Assuming a 63%-37% ratio, approximately €1.89 million corresponds to one country and approximately €1.11 million to the other. It is this amount that may be passed on through regulated tariffs, not the entire annual allowed revenue.
Conversely, if the market generates €13 million while the allowed revenue is €10 million, there is an overrecovery of €3 million. In such a case, no additional charge to users is conceivable for that same year, and the surplus, depending on the regulatory framework, may be offset or taken into account for the benefit of users.
The CBCA mechanism affects the final electricity bill not in a simple, linear way, but through the allocation of the portion of cost each country is permitted to recover. The effect on the final price of electricity depends on whether the interconnection reduces other system charges. This is perhaps the most important point in the public debate. An interconnection may increase one particular regulated charge while simultaneously reducing the overall cost of electricity through lower wholesale prices, greater security of supply, reduced reliance on costly reserves and better use of the market. This is why a proper assessment cannot be made through an isolated figure, but requires comparing total cost against total benefit.
The essence is that the electrical interconnection should not be assessed through a fragmented figure, but on the basis of its overall footprint on the system. Its cost is reduced first by grants, then by market revenues, and only for the remainder does regulatory recovery come into effect. In this way, the burden is allocated according to benefit, while consumers ultimately stand to gain not only from how the cost is shared, but also from how the interconnection contributes to more stable, more competitive and more secure electricity prices.
