Transcript CEER Presentation - European Energy Regulators

Connecting markets
Pamela Taylor, Ofgem
Gas Target Model, 3rd stakeholder workshop
11th April 2011, London
What are we trying to
achieve?
1. Where technically feasible gas should
flow to where it is valued most
• Greater price convergence
2. Efficient use of cross-border
infrastructure
• Capacity hoarding must be avoided
• Contractual congestion must be avoided
• Amount of offered capacity must be
maximised
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Existing policy proposals –
out for consultation
Framework Guidelines
on Capacity Allocation Mechanisms for
the European Gas Transmission
Network
Draft for Consultation
DFGC-2011-G-001
3 March 2011
ACER’s Capacity Allocation
Framework Guideline
- Auctions
-Bundled products
European Commission’s proposals
on Congestion Management
Procedures
- Capacity overbooking – firm
UIOLI
- Restriction of renominations
Objective is for short term firm capacity to allow for more short term gas trading
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What are we observing
today?
Source: http://ec.europa.eu/energy/observatory/gas/doc/qregam_2010_quarter3.pdf
Markets are still not developed in all parts of Europe
Progress has been made, but more needs to be done
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Option 1: explicit, continuous
• Explicit capacity allocation with
continuous trading Example for “overselling”:
• 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)
-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
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Option 2: explicit, gate closure
•
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
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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
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CWE market coupling in electricity
Before CWE coupling
After CWE coupling
100
90
80
Baseload Price
70
60
50
40
Belpex Belgium
30
EPEX France
20
APX Netherlands
10
EPEX Germany
0
5-Oct
12-Oct
19-Oct
26-Oct
2-Nov
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9-Nov
16-Nov
23-Nov
30-Nov
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What is needed for implicit
allocation?
• A party to do the coupling – exchange or
TSO
• Can be same party for both price areas (e.g.
ITVC in electricity)
• Can be two parties that cooperate (e.g. CWE
in electricity)
• Algorithm for determining flows and prices
• Firm network capacity
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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
(GRTgaz-Powernext 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?
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•
•
•
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
Interactions with long-term
gas trading
Surplus
interconnection
capacity
0
No
interconnection
High level of
interconnection
capacity
Interconnection capacity
Some markets have higher proportion of transit than others
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Interactions with long-term
gas trading
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 enduser exit points
a.
Flat rate
b.
Based on flows
Need a redistribution mechanism
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Interactions with long-term
gas trading
How could a redistribution mechanism work?
1. Each NRA sets its TSO revenue requirements – identify how much needed
for domestic network and how much for transit.
•
•
Country A – 400 Euros domestic, 100 Euros transit
Country B – 300 Euros domestic, 200 Euros transit
2. Each NRA sets membership fee to recover:
a. Agreed amount form end-users for national network
•
•
Country A - to recover 400 Euros from end-users and
Country B 300 Euros from end-users
b. Estimate amount from congestion revenues
•
Country A & B recover at the interconnected point 150 Euros in congestion revenues (300
Euros is needed for transit)
c. Country A & B (or ACER) set a ‘membership fee’ to recover shortfall
•
150 Euros
d. Congestion revenues and membership fee combined and redistributed
•
100 Euros to Country A and 200 Euros to Country B
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Initial conclusions
1. Short term firm capacity is needed
2. Explicit continuous model has been successfully
implemented in GB but needs incentivises for TSOs
3. Explicit gate closure may alter gas trading but will
free up unused capacity and allows for renominations
during gas day
4. Implicit auctions are worth exploring via pilot
projects; more efficient than explicit auctions
(electricity experience)
5. High proportion of transit capacity so pricing and
redistribution of revenues is key for any model
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Thank you for your attention!
www.energy-regulators.eu
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