Accelerating European HVDC interconnector deployment: innovative financing mechanisms and regulatory pathways

The decarbonization of Europe’s energy system by 2050 requires a significant expansion of cross-border electricity transmission infrastructure. High-voltage direct current (HVDC) interconnectors are central to this transformation, enabling large-scale integration of renewable energy, enhancing security of supply, and improving market efficiency. However, existing development models, primarily led and financed by national Transmission System Operators (TSOs) through regulated tariffs and public funding, are increasingly insufficient to meet the scale and urgency of investment needs. This paper explores innovative financing mechanisms and regulatory frameworks aimed at mobilizing private capital to accelerate interconnector deployment. We propose a congestion revenue-based regulatory model complemented by an EU-wide cap-and-floor regime to ensure predictable investor returns while safeguarding consumers. Separating asset ownership from system operation enables participation from infrastructure funds, institutional investors, and citizen-financed initiatives without compromising operational integrity. Using the Apollo-Link Interconnector between Spain and Italy as a case study, we demonstrate substantial socio-economic welfare gains, renewable energy integration benefits, and improved system adequacy under multiple future scenarios. By aligning regulatory innovation, financial structuring, and technical planning, the proposed framework provides a replicable pathway for accelerating HVDC interconnector deployment, fostering Europe’s clean energy transition, and supporting the creation of a resilient, low-carbon, and integrated electricity system.