Gas_Strategy_Paper-2012-340-0002-01-E

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Gas Strategy Paper--------------------------------------------------------------------------------------------------

A EURELECTRIC Position paper


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The Union of the Electricity IndustryEURELECTRIC is the sector association representing the common interests of

the electricity industry at pan-European level, plus its affiliates and associates on several other continents.

In line with its mission, EURELECTRIC seeks to contribute to the competitiveness of the electricity industry, to

provide effective representation for the industry in public affairs, and to promote the role of electricity both in the

advancement of society and in helping provide solutions to the challenges of sustainable development.

EURELECTRICs formal opinions, policy positions and reports are formulated in Working Groups, composed of

experts from the electricity industry, supervised by five Committees. This structure of expertise ensures that

EURELECTRICs published documents are based on high-quality input with up-to-date information.

For further information on EURELECTRIC activities, visit our website, which provides general information on the

association and on policy issues relevant to the electricity industry; latest news of our activities; EURELECTRIC

positions and statements; a publications catalogue listing EURELECTRIC reports; and information on our events and

conferences.

Dpt lgal: D/2012/12.105/11

EURELECTRIC pursues in all its activities the application of

the following sustainable development values:

Economic Development

Growth, added-value, efficiency

Environmental Leadership

Commitment, innovation, pro-activeness

Social Responsibility

Transparency, ethics, accountability


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Gas Strategy Paper

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WG Gas to Power

Stephen ROSE (GB), Chair

Pablo ARGUELLES (ES), Gbor BRIGLOVICS (HU), Konstantinos CHRONIS (GR), Ccile DAVID (FR), Beat

DEUBER (CH), Matthias DUEMPELMANN (DE), Sam EMMERECHTS (BE), Gerry HOGGAN (GB), Kosta

KARTOVSKI (MK), Peter G. KRUSAA (DK), Ari LAINE (FI), Carlos MATA (PT), Zvonko PETAN (SI), Thomas

PFLANZL (AT), Elisa RONDELLA (IT), , Derek RUSSELL (IE), Hein-Bert SCHURINK (NL), Aurimas STIKLIUNAS(LT), Alican TAKUNYACI (TR), David VIDUNA (CZ), Ion ZARNESCU (RO)

Sbastien DOLIGE (EURELECTRIC Secretariat), Anne-Malorie GERON (EURELECTRIC Secretariat), Henning

HAEDER (EURELECTRIC Secretariat), Giuseppe LORUBIO (EURELECTRIC Secretariat), Susanne NIES

(EURELECTRIC Secretariat)

Contact:

Sbastien DOLIGE [email protected]


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EURELECTRIC Gas Strategy Paper

1. Introduction

Europes electricity system is undergoing profound changes. The EU has committed itself to a

decarbonisation path that will see an 80 to 95 % reduction in its CO2 emissions by 2050. To reach

this ambitious goal, the electricity sector will need to accomodate an increasing share of variable

renewable energy sources in the generation portfolio. The electricity system will thus not only

face volatile electricity demand, but will also increasingly experience the impact of intermittent

generation.

Natural gas - thanks to its comparatively low CO2 content and its promising use as back-up

capacity for renewable generation has the potential to play a leading role in the EU energy mixand to help solve the challenge of stabilising electricity supply.

In addition to liquid and integrated electricity markets through unconstrained price formation in

the wholesale and retail markets, reinforced transmission and distribution grids, and active

demand-side participation from customers, flexible and competitive gas markets can strongly

contribute to a cost-efficient transition to a low-carbon economy.

In February 2011, the European Council set the goal of completing European gas market

liberalisation by 2014 which accelerated intense activity by the European Commission, the

regulators and the TSOs on gas market design (Framework Guidelines, Network Codes and Target

model). In this context EURELECTRICs WG Gas to Power has worked out a strategic plan from a

gas buyers perspective to allow precise and timely communication of EURELECTRICs position inthe upcoming consultations and more generally in its relations with relevant stakeholders. From

our point of view, gas markets need to become more flexible so that gas-based generators can

act more flexbily. This implies the completion of the internal gas market, as well as the necessary

investments to enhance the flexibility of the physical system (e.g. interconnections, storage,

LNG). The WG has:

agreed on promoting the following three key objectives:

- Availability of gas to meet the current and future demands of CCGT power

stations

- Ability to operate CCGT power stations flexibly without undue restriction

- Ability to buy gas for CCGT power stations at a price reflective of the gasdemand/supply fundamentals in the relevant markets

highlighted a number of specific tasks for 2012 designed to advance these objectives.


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2. Key Objectives

2.1. Availability

As the first key objective, availability relates to the sufficient availability of gas to meet thecurrent and future demands of CCGT power stations. EURELECTRIC has identified three main

aspects to cover in order to reach this objective.

Commodity

EURELECTRIC is keen to maximise the potential gas available to supply power plants from

conventional/unconventional sources and LNG, where economically and technically viable. To this

end, fostering relations with multiple suppliers, both within and outside Europe, will not only

increase security of supply but also competition on the European market. Additionally, we want

to make sure that credible gas demand scenarios for power generation are available topolicymakers.

Infrastructure and capacity

Gas infrastructure is a key aspect to address. EURELECTRIC seeks to strengthen the diversity of

pipeline connections within and towards the EU to ensure that gas can flow where it is needed.

Completing the missing links in the European Union should be a priority. Improvement in internal

infrastructures has benefits in terms of security of supply as well as in terms of progressing to a

single internal energy market.

Implementing physical reverse flows as envisaged by the SOS Regulation should be done more

systematically and at key interconnection points. Similarly putting in place a standard procedure

for efficiently allocating incremental capacity is urgently needed to ensure that all reasonable

demands for primary capacity are met when it is economic and efficient to do so.

As a strong supporter of a fully liberalised and liquid European gas market, EURELECTRIC calls for

mechanisms to ensure the interoperability of pipelines and the compatibility of LNG products at

both regulated and exempted LNG plants, with hub products. Fair and efficient shipper/consumer

access to capacity, including LNG, will be equally important. In that sense, we believe that gas

capacity hoarding through long-term contracts should be prevented by defining appropriate

congestion management procedures at all LNG plants.

Gas market design

Liquid national and regional hubs should be promoted in order to increase security of demand. To

this end, we should aim to increase competition and oversight of the behaviour of dominant

market incumbents in national gas markets as they could present obstacles to effective

liberalisation. In addition, the introduction of consistent and light-touch licensing regimes will

ease the access of new market players to liberalised markets.


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2.2. Flexibility

Flexibility refers to the ability of power generators to operate CCGT power stations flexibly

without undue restriction. As a general strategy, to achieve the best possible level of flexibility,

EURELECTRIC believes that a market design with a proper entry/exit system and virtual trading

points (VTPs) should be implemented in all Member States, as stated in the Third Package. Three

main topics should be addressed to achieve this objective.

Balancing

CCGT power stations can operate most flexibly within a framework of rules which do not overly

penalise their fluctuating demand. EURELECTRIC therefore promotes the implementation of a

daily balancing period with minimum within-day restrictions/penalties. A strong framework for

market-based balancing should be put in place which incentivises network users to balance their

portfolio while transmission system operators (TSOs) should only be responsible for residual

balancing. In order to make the best use of linepack, EURELECTRIC advocates its use tocollectively balance the system, rather than being sold as an ex-ante product. Finally, to maximise

the flexibility for power generators to operate their CCGT power station and support the

stability/liquidity of the market, we think that they should be allowed to re-sell gas at the hub and

offer demand side responses on balancing platforms, including in neighbouring markets.

Cross Border Pipeline & Storage capacity

Another crucial element to achieve the flexibility needed by power generators is fair and efficient

access to short-term capacity from cross border pipelines and long/short-term storage capacity

where unsold or not being used. The ability to assign such capacity easily and quickly also helps inthis regard.

Available unsold capacity either side of an interconnection point which has not been bundled

should be allocated on a bundled basis, while capacity hoarding should be prevented to avoid

distorting the market. Further tools to promote flexible gas supply include virtual reverse flow at

interconnection points and well-functioning secondary markets where capacity can be resold.

Interoperability

A European-wide integrated liberal gas market requires a number of effective measures to ensure

the interoperability of the still fragmented markets. First and foremost, EURELECTRIC advocatesthe harmonisation of the gas day to synchronise the purchase of capacity and the balancing

requirements. Equally important will be the harmonisation of accounting in energy units, which

may otherwise be a barrier to moving gas from one entry/exit zone to another.

Transportation nominations have been developed to support the flow of gas across

interconnection points and other entry/exit points. However, as existing nomination processes

may contribute to operational issues hampering the emergence of an efficient gas market, we

would support standardised cross-border nomination times and renomination lead-times.

Differences in gas quality and consequently differences in national specifications should not

constitute a barrier to trade. We believe that TSOs are in the best position to manage the gas

quality differences which need to be overcome to allow network users to trade without obstacles.


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The same goes for ensuring the compatibility of an increasing amount of LNG products with hub

products offered at VTPs. In addition, gas supply to the EU should not be rejected due to quality

reasons otherwise not only security of supply but also trading and competition could be damaged

within the EU.

Finally, to ensure an optimal operational flexibility, EURELECTRIC supports the implementation of

operational balancing agreements (OBA) at all cross border points.

2.3. Competitiveness

In order to ensure the competitiveness of gas for power generation, CCGT power stations need to

be able to buy gas at a price that reflects the gas demand/supply fundamentals in the relevant

markets. This is linked to the supply of the commodity itself as well as to efficiency of

infrastructure and capacity.

Commodity

Power generators need reliable and equitable relationships with their suppliers in order to

compete on a level playing field. Fostering such relationships will therefore be integral to the

work of EURELECTRIC. A further objective will be to ensure power generators can re-export or re-

sell gas to reflect price differentials in neighbouring markets.


Gas market regulation must ensure that equitable tariffs and terminal arrangements minimiseflow distortions and restrictions. As a means to competitively adjust to changing price

differentials, LNG buyers should be allowed to re-direct or re-load LNG cargos, should market

circumstances require this. Finally, we strongly oppose non-market based security of gas supply

measures and strategic gas storage, as they run counter to the market solutions envisioned for

the future of the EU gas sector.


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3. Annexes

3.1 Specific tasks in 2012

Availability

Commodity:

Invite relevant speakers to meetings to discuss supply developments and attend EU Gas

Coordination Group Meetings

Liaise within EURELECTRIC to ensure credible CCGT demand scenarios


Participate in the development of TYNDP for 2013

Develop a position paper on incremental capacity and standard economic test / Respondto CEER GGPOS consultation and CEER discussions on incremental capacity

Finalise response to ENTSOG CAM consultation

Comment on CEERs LNG transparency template

Liaise with other trade associations regarding fair and efficient access

Respond to ACER consultation on Interoperability and harmonised tariff Framework

Guidelines

Gas market design

Respond to the further development of the Gas Target Model

Meet with relevant stakeholders to discuss regional integration and coupling initiatives.

Contribute to CEERs working on trading passport and EU wide licensing schemes

Flexibility

Balancing

Participate in ENTSOG development of balancing network code (SJWS Balancing Meetings

+ Invite ENTSOG to Gas WG & respond to ENTSOG balancing consultation)

Monitor regional cross-border balancing initiatives (invite CEGH to WG Meeting)

Cross Border Pipeline & Storage capacity

Finalise response to ENTSOG CAM consultation

Invite capacity platform provider (e.g. GATRAC, Trac-X) to a Gas WG meeting

Prepare a briefing note of impact of CMP guidelines on CCGT operators

Respond to CEER review of GPSSO for CAM and CMP

Invite CEER to a Gas WG meeting

Interoperability

Respond to ACER consultation on Interoperability Framework Guidelines


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Participate in ENTSOG development of interoperability network code

Invite ACER to a Gas WG meeting

Competitiveness

Commodity

Develop a paper highlighting the current problems for CCGTs caused by indexation and

resale restrictions

Support gas target model development of hub-to-hub trading


Develop a position paper on tariffs

Respond to ACER/DG Energy tariff harmonisation paper

Attend EU Gas Coordination Group Meetings


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3.2 Action tables

Strategic Objective Work Area Specific

Requirements

Must Do Specific Tasks Key

Responsible

Party(s)

Priority

in 2012

(1 to 3)

Sufficient availability of gas

to meet the current and

future demands of CCGT

power stations

Supply Markets

(Commodity)

Multiple suppliers

Maximise the

potential gas supply

from:

o indigenous

sources

o third

countries

o LNG

o unconventio

nal sources

where commercially

viable.

Ensure gas demand

for power

generation isaccurately

represented

Support and

monitor

developments in:

o indigenous

natural

gas and

unconvent

ional gas

productio

n in

Europe

o countries

exporting

natural

gas,

unconvent

ional gasand LNG

to Europe

Monitor and

assess available

CCGT gas demand

Invite relevant

speakers to

meetings to

discuss supply

developments

Liaise within

Eurelectric to

ensure credible

CCGT demand

scenarios

Commission

Other Trade

Associations

(e.g.

Eurogas,

OGP)

Eurelectrics

EPG

Workgroup

3


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data

Cross Border

Pipeline

Capacity

Diversity in pipeline

interconnection

Fair and efficient

access to available

long term capacity

to underpincommodity

investment

Standard procedure

for efficiently

allocating

incremental

capacity

Congestion

management

arrangements

which ensure long-

term capacity is not

hoarded

Physical reverseflow capability

where economically

justified

Interoperability of

pipelines

Monitor and

input into

10YNDP

Promote efficient

capacity auction

mechanism forlong term

capacity in both

directions

Promote

harmonised

auction/OSP

procedure for

incremental

capacity

Promote

standardised EU

wide economic

test for new

pipelineinvestment

Ensure bundling

of new and

available capacity

TSOs to provide

Respond to

ENTSOG CAM

consultation

Participate in the

development of

10YNDP for2013, as

appropriate

Respond to CEER

GGPOS

consultation

Feed into CEER

discussions on

incremental

capacity

Participate in

development of

harmonised

tariff Framework

Guidelines Respond to ACER

consultation on

Interoperability

Framework

Guideline

ENTSOG

CEER

ACER

2


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quality conversion

and to harmonise

maintenance

Develop a

position paper

on incremental

capacity and

standard

economic test

LNG

Fair and efficient

access to available

LNG capacity and

entry capacity at

LNG terminals

Appropriate

transparency

Reasonable use-it-

or-lose-it

arrangements for

unused berthing

slots

Compatibility of

LNG products with

hub products

Highlight any

concerns that

may arise

Comment on

CEERs LNG

transparency

template

Liaise with other

trade

associations

regarding fair

and efficient

access

CEER

Other Trade

Associations

3

Gas Market

Design

Liquid national hubs

Regional hubs to

increase security ofdemand

Reduce dominance

of incumbents

Consistent and light

touch licensing

Promote national

entry/exit

systems withvirtual trading

points

Monitor regional

hub initiatives

under the Gas

Respond to the

final version of

the Gas Target Meet with

relevant

stakeholders to

discuss regional

integration and

Commission

CEER

EU TSOs

Exchanges 2


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regimes Target model

Support gas

release and

market maker

initiatives to

reduce

dominance of

incumbents in

less developed

markets

Encourage

regulatory best

practice in gas

licensing

coupling

initiatives.

Contribute to

CEERs working

on trading

passport and EU

wide licensing

schemes


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Requirements


Responsible

Party(s)

Priority

in 2012

(1 to 3)

Ability to operate CCGTs

flexibly without undue

restriction

Balancing

Daily balancing

period

Minimise within-day

restrictions/penalties

Market based

balancing incentives

TSO residual

balancing

Right for CCGTs to

re-sell gas at hub

Opportunities for

CCGTs to offer

demand side

response on

balancing platforms,

inc in neighbouring

markets Linepack used to

collectively balance

the system not sold

as an ex-ante

product

Participate in

ENTSOG

development of

BalancingNetwork Code

Monitor and

respond to any

regional cross-

border balancing

initiatives, e.g.

CEGH in the SSE

GRI

Ensure

representation

at SJWS

BalancingMeetings

Invite ENTSOG to

Gas WG

Respond to

ENTSOG

balancing

consultation

Invite CEGH to

WG Meeting

ENTSOG

1


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Cross Border

Pipeline

Capacity

Fair and efficient

access to short

term capacity which

is unsold or not

being used

Ability to assign

capacity

Virtual reverse flow

Functioning

secondary markets

Available unsold

capacity to be

allocated on a

bundled basis

Capacity should not

be hoarded

Promote efficient

capacity auction

mechanism for

short capacity in

both directions

Full transparency

of capacity

availability and

nominations

Respond to

ENTSOG CAM

consultation

Invite capacity

platform

provider (e.g.

GATRAC, Trac-X)

to Gas WG

Briefing note on

impact of CMP

guidelines on

CCGT operators

ENTSOG

EU

Comitology

Committee

2

Storage

Fair access to

long/short term

storage capacity for

CCGT self-shippers

Ensure storage

flexibility can be

fully exploited

Highlight

restrictions

preventing CCGT

self-shippers

acquiring storage

Promote storage

auctions

Encourage

unbundled

capacity to be

made available in

addition to

bundled capacity

Respond to CEER

review of GPSSO

for CAM and

CMP

Invite CEER to

Gas WG

CEER

3


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Highlight

restrictions which

require shippers

to fill and empty

storage within

certain

parameters and

dates

Interoperability

Harmonised gas day

Accounting in

energy units

Standardised cross-

border nomination

times and re-

nomination lead

times

OBAs and

coordinated

maintenance at all

cross-border points

TSO manages

quality

Differences

Highlight

problems for

CCGT operators

resulting from

inconsistent rules

either side of

cross-border

interconnection

points

Invite ACER to

Gas WG

Respond to ACER

Interoperability

consultation

ACER

1

Gas Market

Design

Proper entry/exit

systems in all

Member States

Virtual trading point

Monitor

compliance with

3rd

Energy

Package and

highlight

Meet with

Commission to

express any

concerns

Commission

2


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problems

resulting from any

lack of progress


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Requirements


Responsible

Party(s)

Priority

in 2012

(1 to 3)

Ability to buy gas for CCGTs

at a price reflective of the

gas demand/supply

fundamentals in the relevant

market

Supply Markets

(Commodity)

Reliable and

equitable supply

relationships with

suppliers Flexibility to re-

export or re-sell gas

to reflect price

differentials

Promote relevant

and hedgeable

indexation in gas

supply contracts

Develop a paper

highlighting the

current

problems forCCGTs caused by

indexation and

resale

restrictions

Support gas

target model

development of

hub-to-hub

trading

Commission

2

Cross Border

Pipeline

Capacity

Equitable tariffs

which minimise

flow distortions and

restrictions

Ensure tariffs

minimise cross

subsidy and are

based onmarginal costs.

Develop a

position paper

on tariffs

Respond toACER/DG Energy

tariff

harmonisation

paper

Commission

ACER

1


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LNG

Flexibility to re-

direct or re-load

LNG cargoes to

reflect price

differentials

Equitable tariffs and

terminal

arrangements

which minimise

flow distortions and

restrictions

Highlight any

distortions

relating to LNG

cargo discharge

Promote LNG

capacity auctions

Feed into any

ACER/CEER

analysis of these

issues

ACER

CEER

3

Storage

Avoid strategic

storage and non

market based

security of gas

supply measures

Highlight any

concerns arising

from Member

States

Emergency and

Preventative

Action Plans

under the SOS

Regulation

Attend EU Gas

Coordination

Group Meetings

DG Energy

2


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B - 1000 Brussels BelgiumTel: + 32 2 515 10 00 Fax: + 32 2 515 10 10

VAT: BE 0462 679 112 www.eurelectric..org

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Gas_Strategy_Paper-2012-340-0002-01-E