January 2010

Issue: January 2010

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Feature
- Gas Capacity Allocation and Congestion Management

Events
- see new calendar of workshops
- Madrid Forum presentations

Publications
- National Reports and ERGEG's review of them

Public Consultations
- see calendar from Jan - June

Press Release/FactSheet:
-  Smart Grids

Region in the Spotlight
-  South South-East and the Austrian Gas Hub

Editorial
The European Energy Regulators kick-started the new year with the publication of the 27 national country reports and the accompanying Status Review of Liberalisation and Implementation of the Energy Regulatory Framework.  Its main finding (very similar to last year) is that there has been too little progress in terms of energy markets delivering benefits for consumers. This is why consumers feature as a top priority in the regulators’ 2010 work programme,

With the 17th European Gas Regulatory (Madrid) Forum taking place mid January, gas features strongly this month.  The feature article of this edition is on gas capacity allocation gas and congestion management procedures.  At the Madrid Forum, ERGEG called on the Commission to adopt legally binding rules on congestion management.  Other ERGEG presentations at Madrid included the intermediate results of its study on the 10 year gas network development plan; and ERGEG’s view and next steps on balancing. 

The region in the spotlight this month is the South-South East region given that Austria’s spot gas exchange was established in December as a trading platform for spot market gas products.

Finally the European Regulators are pleased to announce a number of workshops (4 in the month of February).  See the calendar of future consultations and the new calendar of workshops.

Gas Capacity Allocation and Congestion Management - first signs of implementing the 3rd Package

The 3rd Package of energy legislation, adopted in July 2009, provides for EU-wide Network Codes. These will be drafted by the European TSO bodies on the basis of Framework Guidelines set out by the new Agency for the Cooperation of Energy Regulators (ACER).These Network Codes are critical for an integrated EU energy market. But, ACER cannot formally act until 3 March 2011. 

European Commission asked ERGEG to act as if it were the Agency
Work does not stand still. ERGEG is developing Framework Guidelines for Capacity Allocation Mechanisms (CAM) to “pilot” test implementation of the 3rd Package. The European Commission (letter dated 22 September) invited ERGEG to assume the role assigned to the Agency under the new Gas Regulation (EC) 715/2009 and to submit a non-binding Framework Guideline on gas capacity allocation within 6 months (by March 2010). This mirrors the procedure in the new Gas Regulation.

The target model for Gas Capacity Allocation and how to reach it
The aim is to improve the access to cross border interconnection points so as to overcome current difficulties such as different allocation rules on the two sides of borders, different types of capacity products and the domination of the First Come First Served (FCFS) principle (which ERGEG considers inappropriate if congestion exists).

ERGEG’s long term vision for the EU gas market is for trades to be concentrated at virtual hubs, thus benefitting market liquidity. The route to this target model is the cohabitation of interconnected entry-exit systems with a virtual hub.  The general principles are that:
• All market  areas are organized as entry-exit zones with virtual hubs
• FCFS is forbidden if congestion exists (except perhaps for intraday)
• Limited number of harmonised capacity products available all over Europe (to make access to capacity easier)
• Regular and timely coordinated allocations throughout the EU at all interconnection points
• Auctions should be the preferred capacty allocation method; with pro-rata allowed (as an interim step) if conditions are not met for efficient & fair auction procedures

This will allow the move towards uniform capacity allocation procedures at interconnection points throughout Europe in 2 steps: (1) Harmonisation of procedures at every IP: towards bundled products between market areas; and (2) Harmonisation at the EU level: same products & capacity allocation mechanism everywhere

Gas Capacity Allocation Mechanism – pilot Framework Guidelines
The Framework Guidelines on gas capacity allocation (a) address the scope and level of TSO cooperation in capacity allocation (b) set out the framework for harmonising capacity products and (c) set out the tools to be applied for capacity booking procedures, the details of the allocation mechanisms to be applied (e.g. auction, OSW, FCFS), and the facilitator (e.g. booking platforms) to be used. ERGEG presented its first drafts of these Framework Guidelines at the European Gas Regulatory Forum (so called Madrid Forum) this month. The public consultation on these pilot ends on 26th February and there will be a workshop in Brussels on 2 February. This pilot Framework Guidelines will not be legally binding - it is the basis for the Network Operators to draft Network Codes. It is the Codes which may become legally binding (via comitology). In parallel ERGEG is continuing to develop its work on Congestion Management of gas pipelines.

Congestion Management Procedures (CMP)
The major cross-border gas interconnection points in Europe are fully booked but physical capacity use is often below 50%. Contractual congestion at market borders hinders shippers to respond actively to price signals in the short term and to sell their gas cross-border.  Furthermore, lower prices at spot markets are not passed on to all consumers.

Seeing the urgent need to improve congestion management of Europe’s gas pipelines, ERGEG has developed (in consultation with stakeholders) principles for Congestion Management Procedures (CMP).  These focus on the Use It or Loose It (UIOLI) principle and the bundling of capacities to be implemented at all Interconnection Points.

In setting out its proposal at the Madrid Forum this month, ERGEG recommended to the European Commission to adopt binding guidelines on congestion management via comitology.

Comitology process requires quantitative impact assessment of policy options.  To this end, ERGEG has engaged a consultant to assess the (a) social welfare impact of implementing more harmonised and prescribed congestion management procedure based on ERGEG principles throughout the EU. 

CEER/ERGEG Publications

Calendar of current and future public consultations