Transcript Title of presentation

Gas Target Model – progress report
Walter Boltz, Chairman CEER Gas Working Group
19th Madrid Forum
21 March 2011
Where are we starting from?
Current market structure is built upon
national gas markets
• 27 different market designs;
• Level of market integration between national markets is low
• Lack of available firm interconnection capacity;
• Price differentiation between national markets and hubs;
• Low market shares outside the home markets;
• Flexibility of gas flows (is improving).
•Common stakeholder position implies need for action as well
More needs to be done to create an
Internal Gas Market in Europe
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3rd Package – Interacting Instruments
Regional
cooperation
Member States
National regulators
ACER
TSOs
Entry / Exit zones
Market based balancing
Effective
Unbundling
Market
Integration
Congestion Management
Capacity Allocation
Transparency on TPA
(network, storage and LNG)
Framework for investments
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EER vision: Overall goals
• Effective implementation of entry/exit systems;
• Facilitating cross-border market integration;
• Efficient capacity allocation procedures and capacity
usage short time and long-term (i.e. investment signals)
especially for cross-border flows
• Integration of national markets;
• Limiting (physical and contractual) congestions;
• Improving the integration of Trading Points
• Convergence of market prices, reflecting market risks and
supply/demand imbalances;
• Improving security of supply
• Appropriate network, storage and LNG capacity
enhancement;
• Upstream investments.
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EER vision: core elements
Inter
TYNDP
Reserve
price
NRAs/ACER
Etc.
Competition
GRIs
Bundling
Auctions
EFET
Day-ahead
Ministries
Trading VHPs
DSOs
I
E
M
SoS
LNG
Long
term
contracts
T
S
O
trading
Imbalance
charges
Tariffs
E/E zones
CMP
Storages
Balancing
Nomination
Gas day
VIPs
Hub
Transparency
Intraday
Long-term Short-term
ReUIOLI
Nomination
UIOLI
rights
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Stakeholder Involvement
2. WS Bonn:
Options &
Constraints for
models
4. WS Brussels:
3. WS London: Gas target model
Draft gas target
model
1. WS Vienna:
Scope
5. Final CEER Paper
Dec. 2010
Feb. 2011
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April 2011
June 2011
Q4 2011
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Call for Evidence
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Target model non-binding high level principles;
Clear timetable wanted with performance indicators;
Assess the benefits and costs of any options;
Only some want to see distribution systems included;
No clear picture on LNG and storages;
Retail activities, non-wholesale markets, upstream
activities and non-regulated activities should be excluded;
• Reduction of balancing zones can be beneficial less
support for imposed mergers;
• Create conditions to enable zones to emerge organically;
• Not clear whether market coupling is the right solution.
Consensus on the need for a vision but quickly…
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Options discussed up to now
• Size of Entry-Exit / balancing / price zones
• Big versus small;
• What is the optimal size/number of zones?
• Depth of integration
• Focus on cross-border versus full harmonisation of
wholesale markets;
• Incorporation of distribution zones?
• Auction design
• Implicit versus explicit auctions.
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What are the options?
• LECG identified three main options and called for an
evidence-based approach to choosing the best option
• Business As Usual;
• Merged Markets;
• Coupled Markets.
• FSR developed the “MECO” Model
• (mutually no exclusive) Options for enabling functioning
wholesale markets
• Market area model (full merger);
• Trading region model (partial merger, i.e. on wholesale level only).
• Options for connecting functioning wholesale markets
• Enhanced trading conditions;
• Day ahead market coupling.
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Possible options
Source: LECG
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The MECO Model
The model includes the following alternative architectures
• Market Areas
• A single Entry-Exit / balancing / price zone from the import points
to the end-users, either structured as:
• National market areas (if functioning wholesale markets can
be achieved stand alone); or
• Cross-border market areas (if cross-border cooperation is
required to achieve functioning markets).
• Trading Regions
• A single cross-border Entry-Exit / balancing / price zone for
wholesale markets with congestion-free interconnection to
national end-user zones.
Source: FSR
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What to we need to merge
market areas?
• What needs to be harmonised for merging market areas?
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Single Entry-Exit system;
Common balancing rules (to a certain extend);
Common tariff arrangements;
Common capacity allocation mechanisms;
Establishment of one Virtual Trading Point (spot exchange);
Nomination and Renomination rules;
Communication Procedures between TSOs/DSOs;
Gas-day;
Gas quality (e.g. conversion issues btw. L and H-Gas);
Common trading rules;
Rules on liability;
etc.
• Cross-border mergers raise further questions
• How to align the legal framework in the concerned Member States?
• Who is the responsible authority if there are two NRA’s involved?
• Cost allocation between TSO’s due to reduction of bookable points?
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Market coupling for gas?
• An option for connecting day-ahead (or intraday) markets;
• Long/mid term products are essential market segments in gas,
as well as short term products;
• Market coupling was introduced in electricity due to
• Different prices in adjacent but obviously disconnected markets;
• Flows from high to low price areas;
• Reduction of transaction costs.
• Implementation prerequisites for gas
• Harmonisation of market rules (e.g. nomination deadlines, data
format, traded products) at cross-border IPs;
• Trading procedures e.g. one step auctions at IPs; is market
coupling compatible with continuous trading?
Do we see this also in gas in the near future?
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Recap
• Tool for guiding and assessing the ongoing process of
developing FGs/NCs and other Guidelines;
• Some general questions on market coupling still have to be
answered;
• Only few of the existing 27 markets will be ready for market
coupling by 2014;
• Enabling of market coupling in FG useful
• Pilot projects on implicit auctions?
• Need to develop a Road Map on an achievable target model
which can be implemented by 2014.
A non-binding, top-down framework of principles and
characteristics that are as broad as possible, providing a
description of how the market is expected to develop.
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Thank you for your attention!
www.energy-regulators.eu
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BACKUP
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Effects of Implicit Auctions / MC
Market A: Low Price
Market B: High Price
€/MWh
€/MWh
Congestion rent:
E * (p‘imp - p‘exp)
Demand
Demand
Supply
Consumer rent
p‘Exp
Additional welfare gain
(producer rent)
Consumer rent
pImp
producer rent
p‘Imp
Supply
pExp
qExp
MWh
Additional welfare gain
(consumer rent)
qImp
MWh
producer rent
Redistribution of rent
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Redistribution of rent
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Thank you for your attention!
www.energy-regulators.eu
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