capacity allocation & congestion management€¦ · capacity management - overview activities...

Capacity Allocation & Congestion Management

2nd Workshop

28th of May 2019

Martin Paletar, Dr. Daniel Grote, Waisum Steinborn-Cheng, Nebojša Filipović (DNV GL)

Agenda

Introduction01

2

Re-cap on Capacity Allocation Mechanisms02

Coffee break

Status Quo and Gap Analysis05

Recommendations06

International Experience03

Discussion and Next Steps07

Re-cap on Capacity Allocation Mechanism & Congestion

Management

How European liberalization changed traditional models in the gas system

4

Transmission

System Operator

Distribution

System Operators

Producers /

Importers

Direct Customers

UGS

Traders &

Shippers

The Shippers and Traders are

crucial institutions that link the

whole gas system

Services of these market players

composed not only of the

provision of gas volumes but also

booking of capacities from

network system operators

Capacity Management - Overview

Shippers’ activities:

5

Re-nomination Nomination BookingRequest

Capacity request

of shippers to the

TSO

Capacity

reservation at a

specific network

coupling point

for a specific

period of time

Order of a shipper

to the TSO to

transport gas in

the following day

(based on the

booked capacity)

Short-term

modification of

nominations

(e.g. in

Germany: 2 h;

the UK: 4 h

before the actual

gas transport)

Entry-Exit System

6

Production

Storage

LNG

N X

X

Cross border

N

Directly

connected

customers

Storage

Cross border

Trading

VP

Local Local

TS

O l

eve

lD

SO

le

ve

l

X

N Physical entry

pointX Physical exit point Contractual flow of

gas

System

boundary

Elements of an Open Access Framework for Gas Transmission

7

Balancing

Arrangements

Network

Access Model

Capacity and

Congestion

Management

Areas of

open

access

• Entry-Exit

System

• Revenue

regulation

• Tariff structure

• TPA

requirements

• Allocation

principles

• Capacity

products

• Supplementary

incentives

• Procurement of

balancing

energy

• Settlement of

imbalances

• Flexibility

market

Options /

Major

determinants

Open access

Overview on Principle Mechanisms and Procedures

Capacity Management - Overview

Activities of Network Operator:

9

1. Capacity

definition 2. Capacity

assessment

3.

Allocation

4.

Congestion

management

5.

Pricing

6.

Capacity

optimisation

Determination of the

available capacity using the

relevant product definitions

Allocation of the

determined capacity

(granting contractual

rights)

Specific rules in the case of

network constraints

Definition of the

relevant capacity

products

Measures to

maximise the

available capacity

(technical

/commercial)

Closely related to

congestion

managementPricing principles, it

may be interrelated to

the allocation process

Capacity products can be varied in terms of firmness, flexibility and duration.

• Risk of interruption

− Firm capacity: capacity that cannot

be reduced

− Interruptible capacity: capacity that

can be reduced to zero

• Coordinated capacity

bundled or unbundled products

are products consisting of the

corresponding entry and exit

capacities on both sides of the IP

10

• Booking time period

− Day / Week / Month / Quarter/

Year / > 1 Year

− May be differentiated by season

(e.g. winter and summer month)

• Other possible variations

− Specific transport portfolios (e.g.

backhaul-, shorthaul,)

− Temperature dependent (as proxy

for demand) capacity products

By combining the above mentioned determinants a portfolio of

capacity products can be created!

FCFS and Pro Rata

• First-come, first-served (FCFS)

− Dominant capacity allocation model

in EU prior 2015

Advantage: simplicity

Disadvantage: not market-based >

no scarcity signals, no optimisation

of capacity

• Pro rata

− Shippers receive a share of

available capacity which reflects the

level of their requested capacity

Disadvantage: Incentives to

request excessive volumes of

capacity, potentially unfair for small

shippers11

• Open Season

combines demand evaluation with capacity allocation

shippers are faced with uncertainty regarding allocated capacity and costs

Advantage: Market-based, every capacity request can be satisfied, less risk for investor

Disadvantage: Uncertainty for shippers during contracting phase

Auctions

• Used strongly in the EU

• Several design models possible, e.g. auctioning of quarter capacities with start price (published for the respective network point) und ex ante defined price steps

• Various auction techniques possible:

−English auction (open ascending auction with free bids and start price)

−Vickrey auction (sealed-bid second-price auction)

−Reverse auction (tenders)

− …

Advantage: Market-based, provides signals for scarce capacity and ensures market-driven and non-discriminatory allocation

Disadvantage: More burdensome and complex than FCFS-model 12

Congestion Management

What is congestion?

• Physical congestion

− The utilisation of a network point or network area is

technically at or beyond its capacity limit

− The actual load corresponds to the amount of booked

capacity

− In long term it can be relieved only by network extension

• Commercial congestion

− The utilisation of a network point or network area is

technically below its capacity limit

− The actual flow is lower than the amount of booked capacity

− It can be relieved by using suitable methods for capacity (re-

allocation) > Capacity Optimisation

13

Sum of all bookings

Max

technical

capacity

Actual flow

Max

technical

capacity

Actual flow

Instruments to Prevent Congestion

• Oversubscription and buy back scheme− TSO sells more capacity then available

− In case of congestion the TSO would attempt to buy capacity back from the network users on a short term basis

− Usually be on a daily basis, but given the circumstance, capacity could also be bought back for longer periods such as on a weekly (even monthly)

• Interruptible capacities Additional interruptible capacities are sold

With contractual congestion only, risk of interruption will be low

• Market coupling / Implicit auctions− The combination of commodity trade with (the utilisation of limited) transmission capacity

allocation that aims to manage limited transmission capacity more efficiently as well as to increase price convergence between two or more commodity markets in different areas

− Serves to utilise technical capacity up until full price convergence

− BUT! Still congestion issues with more liquid markets14

Capacity Allocation and Congestion Management

—EU Acquis

EU NC CAM: BackgroundScope and Definitions

• All interconnection points (IP), with an IP being defined as ‘a physical or virtual point connecting adjacent entry–exit systems;

• As far as these points are subject to booking procedures;

• It applies to interconnections between adjacent entry–exit zones irrespective of whether or not these zones are located in the same country or not.

16

NC CAM applies to:

NC CAM does not

apply to:

• entry points from liquefied natural gas (LNG) terminals and production (in other words connections between upstream and transmission networks facilities;

• exit points to end consumers and distribution networks;

• entry points from, or exit points to, storage facilities

• IP with third countries BUT.

EU NC CAM: Capacity Allocation RulesProducts

• Technical capacity, defined as: ‘the maximum firm capacity that the transmission system operator can offer to the network users, taking account of system integrity and the operational requirements of the transmission network’; 20 per cent minimum levels of reservation quotas

• Interruptible capacity, defined as: ‘gas transmission capacity that may be interrupted by the transmission system operator in accordance with the conditions stipulated in the transport contract’ (Art. 2, Gas Regulation 715);

• Additional capacity (in the meaning of point 2.2.1 of Annex I of Gas Regulation 715), defined as: ‘the firm capacity offered in addition to the technical capacity of an interconnection point calculated on the basis of Art. 16.133 of this Regulation’ whereas ‘any additional capacity made available through the application of one of the congestion management procedures as provided for in points 2.2.2, 2.2.3, 2.2.4 and 2.2.5 shall be offered by the respective TSO(s) in the regular allocation process’ (CMP (Annex I to Gas Regulation 715));

• Incremental capacity (further slides)

17

NC CAM

applies to:

EU NC CAM: Capacity Allocation RulesProcess

• The CAM NC stated that ‘auctions shall be used for the allocation of capacity at an interconnection point, unless provided otherwise’ (Art. 8)

• The CAM NC defines the following standard capacity products for auctions:

yearly,

quarterly,

monthly,

daily,

and within-day

18

# of products per

auction per IP

Auction Process

Auction Process

Auction Process

Auction Process

Auction Process

15

4

11

1

EU NC CAM: Capacity Allocation Rules

• Overview of CAM and their Alignment with 3rd Package Requirements

19

• Auction is most preferable method, however it can only be applied if the market is competitive enough

Non-disciminatory /

transparant

Provide economic

signal

Compatibility with market

mechanism

Auction Strong Strong Strong

FCFS Weak Weak In combination with product

Pro rata Weak Weak N/A as trading tool at hubs

CGWC Weak Weak N/A as trading tool at hubs

Contractual congestion mitigation

20

EU legislation specifies that congestion management instruments must be market-based!

• UIOLI/UIOSI

Capacity is withdrawn from shipper or shipper is forced to sell it, if capacity is not used

Can result in short-term UIOLI, i.e. unused capacity is sold short-term while restricting re-nomination rights; no permanent withdrawal

• Secondary market

− Whether TSO offers interruptible capacity at least on a day-head, shippers with additional un-needed capacity should be entitled to resell it on the secondary market, Directive 2009/73/EC, Art. 8 envisages that TSO must take reasonable steps in this step

Secondary

Market

Oversubscript

ion and Buy

Back

Interruptible

Capacities

Market

Coupling

UIOLI/

UIOSI


—International Experience

International Experience– The Czech Republic

22

The TSO of the gas transmission network in the Czech Republic is NET4GAS.

8 DSOs which are directly connected to the transmission system and serve more than 90,000 customers. And 80 smaller DSOs which are not directly connected to the distribution system or serve less than 90,000 customers.


23

ERU (the Energy Regulatory Office) regulates both the distribution companies as well as the TSO.

• The Energy Act: the most important law that regulates the entire energy supply sector in the Czech Republic is Act No. 458/2000, Coll.

• Gas Market Rules: Regulation No. 349/2015 Coll., the Gas Market Rules, was issued by the Energy Regulatory Office. It lays down rules, procedures, and conditions for the operation of the gas market in the Czech Republic. The Gas Market Rules reflect and specify the details of relevant European Union regulations, such as NC CAM, NC BAL, and NC INT.

• Network Code: is based on Regulation (EC) No. 715/2009 and CAM NC.


24

Capacity products and allocation

• NET4GAS offers transmission products as according to the NC CAM:

firm and interruptible capacities in all their required durations:

yearly,

quarterly,

monthly,

daily,

within-day.

• Transmission capacity for all border points, with the exception of the Czech-Polish border point, is offered through the PRISMA auction booking platform. Transmission capacity for the Czech-Polish border point is offered through the GSA auction booking platform.

International Experience– Serbia

25

Legal and Regulatory Framework

• The Energy Law at the end of 2014, harmonized with the provisions of the Third Energy Legislation Package of the European Union.

• No other specific law on gas system as for electricity.

• the organization and administration of the natural gas market are defined within the Transmission Network Codes:

Srbijagas

Yugorosgaz Transport


26

Capacity Allocation Mechanisms

• The transmission network codes adopted by both Srbijagas and Yugorosgazare generally harmonized with the requirements of Regulation (EC) 715/2009 related to capacity allocation mechanisms and congestion management procedures.

• Serbia gas system operates in an entry/exit system and TSO publishes call for contracting of capacity firm or interruptible, which may be annual, monthly or daily.

• TSO accepts all submitted requests and allocates capacity to all applicants. In case of overbooking of capacity, TSO allocates capacity proportionally to the requested capacity (pro-rata basis).

• No within day products, no auctions!


27

Implementation and Non-compliance

• In general, both TSO follow the rules in the NCs. But no within the day products and auctions.

• IP Horgos: Srbijagas banned the allocation of its capacities at the interconnection point with Hungary, without a relevant explanation.

Complains raised by the ECS with Serbia infringes its obligation to ensure non-discriminatory third party access.

Exemption of third-party access of new pipeline projects

• By the Energy Law (Article 288), new gas pipeline infrastructure facilities may be upon request exempted from the application provisions of the Third Energy Package

• Exception granted to GASTRANS d.o.o., ECS on the access and unbundling rules; the EC requested an issued opinion from the NRA.

International Experience– Croatia

28

Legal and Regulatory Framework

• a new Gas Market Law in February 2018 to adjusts its rules with the Third Package.

• The regulatory framework for capacity allocation and congestion management in Croatia encompasses:

Law on Gas Market („Official Gazette “, No. 18/18)

Transport Network Code for PLINACRO („Official Gazette“, No. 50/18, amended No. 31/19)

International Experience– Croatia

29

TSO Network Code and Capacity Allocation

• TSO offers IP’s capacity according to NC CAM as firm and interruptible on annual, monthly, daily and within the day basis.

• Interconnection capacity is allocated using auctions on which basis the TSO prepares a contract on gas transport service with the validity up to 15 years.

• Auctions are executed by the auction calendar, published on ENTSO G and PLINACRO web page. During the period specified in contract on gas transport on interconnection, network user may participate in unlimited number of auctions.


—Status Quo in BiH Transport

System

Bosnia and Herzegovina – Status Quo

31

Legal Framework

State BiH

Currently, no legislation regulating gas networks (incl. allocation of capacity) is adopted at the national level for Bosnia and Herzegovina.

No state regulatory authority has been established in Bosnia and Herzegovina in charge of regulating the gas sector.

Republika Srpska

Law on Gas (March 2018).

Transport Network Code of Republika Srpska (January 2015).

Federation BiH

Decree on Organization and Regulation of Gas Sector, Negotiated third party access based on Ministry decisions.

Relevant provisions of Third Package are not transposed / no reference to capacity allocation.


32

Practical Experience of Capacity Allocation

The current system lacks clear provisions governing the responsibilities and actions in cases of both, physical and contractual congestion.

Currently the system applies the FCFS (first-come first-served) principle to allocate capacity to network users -effective if congestions occur.

Currently the gas market in BiH is not developed

Current arrangements do not set out provisions dealing with the real-time operational congestion management and capacity optimisation procedures


33

Practical Experience of Capacity Allocation

IP with Serbia

Current Network Code outdated, but with some functional allocation of both long- and short-term capacity (annual and monthly) — on firm and interruptible basis.

Congestion management procedures do not envisage the re-offer of unused capacity to the primary market on a day-ahead and interruptible basis in case of contractual congestion, nor any practical possibility for capacity trade on a secondary market.

Two traders (BH Gas and GAS RES) who together book maximum daily capacity of 1.86 million m3/day (240 mln. m3).

The system works on first-comes, first-serves basis.

In order to qualify for capacity, traders must prove they have reserved the same capacity across the transit route also abroad.

Gap Analysis

34

Area Bosnia and

Herzegovina (national level)

Federation BiH Republika Srpska

Legislation in place N/A N/A Transport Network Code

Implementation of entry-exit system Not implemented Not implemented

Implementation in progress

Tariffs set for network sections

Definition of Capacity Allocation and Congestion Management

Not defined Not defined Art. 49 of Law on Gas

Requirements ofCapacity Allocaiton Not defined Not defined Art. 50 of Law on

Gas

Requirements of Congestion Managment Not defined Not defined

Art. 50 of Law on Gas and Art.5 (definitions) of Network Code

* ‚State Draft Law‘ Art. 17,18, 20 – tasks a State Regulator with responsibility to inter alia define capacity allocation rules and congestion managment.

Recommendations

Bosnia and Herzegovina – Recommendations

36

Gas Regulation:

Gas Market Rules

• Regulatory authority shall lay down rules, procedures, and conditions for the operation of the gas market in Bosnia and Herzegovina.

• Implementation of an entry-exit system for the gas transmission system in BiH.


37

Gas Market Rules: Main Elements of Capacity Allocation

• Both firm and interruptible with yearly, quarterly, monthly, daily, and

within day standard products.

• Transmission capacity should be also offered to be booked as bundled or

unbundled.

I

II

• In order to enable bookings of all the standard products in practice, all

capacities should be booked in auctions under a directly applicable NC

CAM rules.

• A small system as in BiH, the use of auctions might initially be seen

difficult in implementation and perhaps inappropriate. Nevertheless, it can

be left up to each TSO to choose a relevant and most suitable type of

auction.

The task of regulator shall be in monitoring of these procedures.

Types of transmission capacities at each of the entry and exit points of

the transmission system:

Capacity reservations and bookings for IPs should be submitted via an

action booking platform.


38

Gas Market Rules: Main Elements of Capacity Allocation

III

• A new procedure shall help the BiH system to identify and assess the

market demand for additional gas transport capacity throughout the

system in efficient and transparent manner.

• We recommend this process to follow the NC CAM rules and consist of:

(1) demand assessment;

(2) design and economic test;

(3) open season and market testing.

Capacity reservations and bookings for IPs should be submitted via an

action booking platform.


39

1. No significant physical congestion at IP with Serbia under normal conditions.

Extreme cold weather: the solution to

such situations needs to be analysed

from the perspective of security of the

whole BiH system and will be eased

only by investing in future infrastructure.

2. Contractual congestion shall be eased by introduction of mechanisms of re-allocation of unused capacity:

• Assessment and audit of capacity usage for large capacity holders; and

• Transparent secondary market.


40

3. Capacity products:

• The TSO shall offer the following standard capacity products at all entry and exit points: Yearly; Quarterly; Monthly; Daily; Within-day.

• Regulatory authority should in particular consider setting aside higher shares of capacity with a shorter duration to avoid foreclosure of downstream supply markets.

• Long-term bookings shall be offered and as well as accepted online

4. Booking platform:

• Current practice based on a request form of submission is not fit for bundled capacity products.

• A single, web-based, booking platform needs to be implemented, we recommend using one of ACER’s approves booking platforms such as PRISMA, GSA, or RB.


41

• Currently, there is no IP located in the system of FBiH and the gas is delivered through the IP with Serbia.

• New IP with Croatia?

• Separate entry/exit system between the entities?


42

In the EU only Germany still operates more than one entry-exit system.

• 16 gas TSOs operating in 2 market areas (2 entry-exit zones) to be merged into a single area by 1.4.2022

• GASPOOL includes a gas transmission network of around 15,000 km and connects to 13 entry points and around 400 downstream networks. NetConnectGermany connects 15 entry points and more than 500 downstream network.

• Market area virtually merges transmission and downstream distribution systems into a single balancing zone.

• 2 entry-exit systems would require new IP between both entities.

• New interconnections will lead to changes of the utilization of transportation network capacity in both entry-exit zones.

• This change would be determined by the gas prices on the different import routes and the development of gas demand.

• 2 entry-exit system in BiH would require FBiH to implement NC CAM fully.

Discussion and Next Steps

Next Steps

44

Draft report shared with stakeholders, opportunity

to comment in writing.

Development of recommendations

(+ integrating stakeholder feedback)

Submission of final report

(integrating stakeholder feedback)

Hvala!

Martin Paletar, Energy Markets & Technology

DNV GL Energy

DNV GL Energy Advisory GmbH

Zanderstr. 7

53177 Bonn

Phone: +49 228 44690 64

E-Mail: [email protected]

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