Transcript Pre com GTM

Gas Regional Initiative
North West Region
Gas Target Model
BNetzA/Ofgem
Pre-Comitology Meeting
Bonn – 26 May 2011
Introduction
The Target Model (Madrid Conclusions) should:

provide support for FG and NC development to
reach 2014 goal for completing the internal market
 guidance also for Commission´s guidelines and
Regional Initiative / Int. Projects
 Internal market means: real choice, more cross-border
trade, competitive prices…

provide an outlook on the EU gas market beyond
that date
 Starting Point is problems the gas market faces
Pre-Comitology Meeting
Bonn – 26 May 2011
2
Status of Project

Series of public workshops




Vienna (December 3rd 2010)
Bonn (February 22nd 2011)
London (April 11th 2011)
Brussels (June 28th 2011)

Stakeholder roundtables

Input from two external studies
 LECG
 Florence School of Regulation in co-operation with the Clingendael
Energy Programme and Wagner, Elbling & Co.  MECO-S Model

CEER Paper is currently being drafted
 Final draft version to be presented at 4th workshop in Brussels
Pre-Comitology Meeting
Bonn – 26 May 2011
3
Setting the scene
Challenges:
 Internal market by
2014  Competition
 EU 20-20-20,
integration of RES
 more CCGT’s?
 Power to Gas?
LNG
?
LNG
LNG
Pre-Comitology Meeting
Bonn – 26 May 2011
 Security of Supply
 N-1, Reverse
Flow, access to diff.
supply sources
less domestic gas
production
 more transit, new
investment
4
Problem Identification

3rd Package makes Entry-Exit systems obligatory:
 Large Entry-Exit Systems may reduce firm capacity
- Internal congestion may lead to cross-subsidisation
 Small Entry-Exit systems are not market capable
- problem of “pan-caking” for long-distance transport

For gas to flow where it is needed (price signal) there needs to
be available capacity

Contractual Congestion identified as a major problem, but not
for all IPs
 Recital 21: “There is substantial contractual congestion in the
gas networks.”
 Definition: "contractual congestion" means a situation where the
level of firm capacity demand exceeds the technical capacity, Art.
2(21) Reg. 715/2009
 Commission proposal on Congestion Management
Pre-Comitology Meeting
Bonn – 26 May 2011
5
Status of market integration in the NW region
Traded Gas Volumes on European Hubs
PEG North
TTF
NCG
GPL (bis 01.10.2009 MG H-Gas Norddtl.)
ZEE
140.000 GWh
120.000 GWh
100.000 GWh
80.000 GWh
60.000 GWh
40.000 GWh
20.000 GWh
Source: European Commission





Significant indigenous gas production, but increasingly import dependent
Decoupled entry-exit zones implemented in almost every country
NBP most liquid hub (churn rate:14-15), Zeebrugge (4-6), TTF (3-4), NCG (2-3)
Gaspool (2-2,5), PEG Nord (1,5), trading volumes increasing
Increasing price convergence but still price differences
Significant infrastructure investments of European dimension (e.g. Northstream)
Pre-Comitology Meeting
Bonn – 26 May 2011
6
Feb 11
Dez 10
Okt 10
Jun 10
Aug 10
Apr 10
Feb 10
Okt 09
Dez 09
Jun 09
Aug 09
Apr 09
Feb 09
Okt 08
Dez 08
Aug 08
Jun 08
Apr 08
Feb 08
Dez 07
Okt 07
Jun 07
Aug 07
Apr 07
Feb 07
Okt 06
Dez 06
Aug 06
0 GWh
Overview of high level options
MECO-S & LECG
Enable Markets:
•
Market areas (sub-) national or
cross-border
•
•
•
Full vertical integration
Merging of market areas
• Taking physical connection
into account
Trading region
•
•
Merger of entry-exit systems
• Taking physical connection
into account
Seperate end-user zones with
national balancing system
Connecting markets:
•
•
•
•
Bundling of capacity
Harmonisation of products, Gas-day
Explicit Auctions
Make capacity available via UIOLI and/or
Overbooking
•
Market coupling
•
Day-ahead implicit auctions/allocation as
possible element to be tested in pilots first
Improve effectiveness by realising economic pipeline investments
Pre-Comitology Meeting
Bonn – 26 May 2011
7
How to enable functioning wholesale markets?

Different pictures all over Europe call for different approaches
which are not mutually exclusive


If a country is capable of establishing a functioning market itself the
establishment of one (or two, based on C/B analysis) zone within this
country is important (e.g. GB, Germany, France, Spain);
If a country is not capable of establishing a functioning market itself (e.g.
due to lack of liquidity or size)
-
Cross-border market areas (full merger) is one solution; or
Accession to a larger, already functioning market; or
Trading Regions – a single cross-border zone for wholesale markets with
congestion-free interconnection to national end-user zones.
Pre-Comitology Meeting
Bonn – 26 May 2011
8
The Market Area Model
Country A
Features:
 One virtual point for wholesale trading
 Fully integrated wholesale market
 One balancing zone from import points to
final customers
 Full integration of DSO networks
 Single set of balancing rules
 Single balancing entity
Market Area A
VP
National
market
area
Final customers (A)
Country A
Country B
Market Area AB
VP
Crossborder
market
area
Symbols
VP
Final customers (A)
Final customers (B)
Virtual point of the market
area serving as the sole
marketplace of the market
area
Entry or exit contract
Exit contract
Pre-Comitology Meeting
Bonn – 26 May 2011
9
The Trading Region Model
Country A
Country B
Trading Region AB
VP
End user
zone A
Final customers (A)
End user
zone B
Final customers (B)
Features:
 One virtual point for wholesale
trading
 Fully integrated wholesale market
 Trading region is basically kept free
of imbalances
 Final customers are balanced in
national end user zones that may
reflect national specifics
 End-user balancing may be done by
national balancing entity
 Congestion-free interconnection
between trading region and end user
zones through the common virtual
point ( virtual exit to end user zone)
Legend and Symbols
End user zone = National balancing zone for national final customers, no matter the system (distribution or transmission) they are connected to
Trading Region AB = Cross-border entry/exit system including all nominated points on the transmission systems of countries A and B
Entry or exit contract
Exit contract
VP
Virtual point of the trading region serving as the sole marketplace of the trading region and all attached end user zones. Shifting of gas between
trading region and end user zone is done by nominating a virtual exit on the VP.
Pre-Comitology Meeting
Bonn – 26 May 2011
10
What needs to be done in all approaches?

Prerequisite for merging market areas and creating trading
regions:


Absence or at least limited physical congestion
As soon as we are talking about cross-border integration the
following issues have to be analysed


Entry / Exit Tariffication
Redistribution of revenues and costs



Alignment of regulatory framework
Investments
TSO as well as NRA cooperation
Pre-Comitology Meeting
Bonn – 26 May 2011
11
How to connect markets? Option 1

Option 1 : Explicit capacity allocation with continuous
trading
 Explicit auctions (CAM FG)
 Bundled Products
 No gate closure, no restriction
of renomination rights
 Overselling
 Interruptible Use It Or Lose It
 All capacity is financially firm
(not necessarily physically
firm)
Example for “overselling”:
-Shipper A books 100 units of capacity
-Shipper A nominates 50 units
-TSO assumes that shipper A will not use
remaining 50 units, TSO sells them dayahead
-Shipper B buys remaining 50 units off
TSO
-Shipper A has paid for 100, but only
used 50 units
Capacity hoarding is a bad deal!
TSO takes a risk and needs
appropriate incentives
Has been effective in GB, but requires NRAs to set appropriate incentives
Pre-Comitology Meeting
Bonn – 26 May 2011
12
How to connect markets? Option 2

Option 2: Explicit capacity allocation with gate closure
Example of Gate Closure with firm UIOLI or UIOSI
- Shipper A has 100 units in long-term contract
-Shipper A nominates 50 units, it loses or is paid for the remaining 50 units (or a proportion thereof)
-TSO sells shipper A’s remaining 50 units (or a proportion thereof) in day-ahead auction on a firm basis
- Shipper B buys the 50 units, nominates only 20, so loses the remainder intraday
- If shipper A wants to increase its nomination, it buys additional capacity intraday
Long-term market
(explicit capacity
allocation)
Gas day
Nomination
Intra-day shipper trading
Use it or lose it: unused capacity is sold
through auction or FCFS
Firm day-ahead auction of any capacity that
was not nominated (Use It Or Sell It)
Gas trading would shift to where auction takes place, but
can be adapted to allow for renomination during the gas day
Pre-Comitology Meeting
Bonn – 26 May 2011
13
How to connect markets? Option 3

Option 3: implicit auctions
More efficient than explicit capacity auctions as it removes risk of separate
transactions and allows markets to merge where no physical congestion
Pre-Comitology Meeting
Bonn – 26 May 2011
14
How to connect markets? Option 4

Option 4: implicit, continuous

Can be used FCFS or implicit auctions


FCFS day-ahead not compatible with CAM FGs?

Series of implicit auctions may disperse liquidity but more auctions allow for
flexibility
Arbitrages realised by the TSO from low price area to high price area with
implicit allocation of capacity valued at the day-ahead price spread (GRTgazPowernext market coupling work)
Auction
gate
closures
Long-term market
(explicit capacity allocation)
Day-ahead/ intra-day
Implicit allocation
Continuous implicit allocation may be a solution to allow for efficient gas flows while
keeping the flexibility provided by continuous trading?
Pre-Comitology Meeting
Bonn – 26 May 2011
15
If short term capacity is freed-up, what
should be the reserve price?

Zero reserve price allows capacity to be
re-allocated at 0 cost if there is no
congestion

If congestion, auction price will rise above
zero

Will a zero reserve price change shippers
behaviour and move markets towards the
short term?


In non-peak periods maybe more reliance
on short term
Peak period: long-term capacity still
needed
High revenues

Congestion revenues
Further issues:
Interaction with long-term gas trading (1/2)
Surplus
interconnection
capacity
0
No
interconnection
High level of
interconnection
capacity
Interconnection capacity
Some markets have higher proportion of transit than others
Pre-Comitology Meeting
Bonn – 26 May 2011
16
Further issues:
Interaction with long-term gas trading (2/2)
Options for reserve prices for short term capacity
1.
No reserve price (solution in electricity) but in gas domestic tariffs
subsidise transit flows?
2.
Set a reserve price to recover costs- impact on price convergence at
congested points?
3.
Set a reserve price at non-congested points but not at congested
4.
No reserve price at interconnection points but a ’membership fee’ at
end-user exit points
a.
Flat rate
b.
Based on flows
Need a redistribution mechanism
Pre-Comitology Meeting
Bonn – 26 May 2011
17
Thank You!
Pre-Comitology Meeting
Bonn – 26 May 2011
18