Directie Toezicht Energie, Bonn WS 8 february Bonn
1
SG Workshop:Secondary markets for
interconnection capacity:way to adress contractual
congestion
SG Meeting Bonn February 8th 2007
Directie Toezicht Energie, Bonn WS 8 february Bonn
2
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
3
Introduction of the workshop (1):Secondary market is not performing its task as an effective congestion management procedure
Main task secondary market:
effectively deal with contractual congestion on
interconnection points
Current status quo:
secondary market is not effective in
solving contractual congestion for capacity
Directie Toezicht Energie, Bonn WS 8 february Bonn
4
Introduction of the workshop (2):Objectives of the workshop is to provide Enabler Group with input for Implementation Plans
Quick wins: – changes in the current secondary market design (input for the
EFET/Operators workshop on DA Capacity Auctions);– improvements in the current congestion management
procedures (primary capacity):• interruptible capacity product
– Input for other EU capacity work (EASEE-gas, EFET etc.)Long term wins:
– incentives for shippers to offer capacity on the secondary market:
• current primary market (input for the primary market group);• improvements in the current firm UIOLI design
Directie Toezicht Energie, Bonn WS 8 february Bonn
5
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
6Results of the Study on performance
secondary market
Includes Questionnaires response
Thank you!
Directie Toezicht Energie, Bonn WS 8 february Bonn
7
Outline of the study
1. Current situation;
2. Results of the questionnaire;
3. Qualitative analysis performance sec. market.
4. Way forward
Directie Toezicht Energie, Bonn WS 8 february Bonn
8
Primary Allocation Method(TSO)
interruptible primary capacity
available capacity
Firm UIOLI(TSO)
Interruptible UIOLI(TSO)Secondary
Market(shippers)
firm primary capacity
unfulfilled demand
demand
unused firm primary capacity
uitlized firm primary capacityuitlized interruptible
primary capacity
utilized firm and interruptible
secondary capacity
unneeded firm and int.
capacity
1. Current Situation (1):Congestion management procedures
Directie Toezicht Energie, Bonn WS 8 february Bonn
9
1.Current Situation (2):characteristics current design of the secondary market
Bilateral market;
Online bulletin board with centralized information on specific
amount of capacity offered/requested, party and price (facilitated
by the TSO)
No coordinated entry-exit product on an interconnection point;
Capacity rights or usage right;
Implementation lead time of maximum 10 days, average around
5 days.
Directie Toezicht Energie, Bonn WS 8 february Bonn
10
2. Questionnaire analysis performance congestion management procedures:secondary market is not successful in solving contractual congestion Questionnaires analysis shows a clear and consistent overall
picture of the performance of the congestion management
procedures in the NW-European region:Secondary market:– No transactions on the majority of NW-European interconnection
points;– Active secondary markets are illiquid;
Other congestion management measures status quo:– Firm UIOLI has never been applied;– Interruptible capacity is the principal congestion management
procedure
Directie Toezicht Energie, Bonn WS 8 february Bonn
11
3. Qualitative analysis (1):prim. cap. right owners see other uses for capacity rights than offering them on the secondary market
Possible motives shippers for not offering capacity:– Reducing risks (risks of not being able to follow up on contractual obligations
outweigh the profit that can be made on the sec..market);– Retain flexibility for trade (profit that can be made by trading between hubs
is greater than that an be made by trading the capacity on the sec. market); Assumed motive by shippers for other shippers for not offering
capacity:– Anti-competitive behavior (without prejudice)
Motives shippers for not buying capacity:– Lack of trust in supply;– ‘Competition’ from other sources of capacity/commodity;– Shortcomings in current design and facilitation.
Directie Toezicht Energie, Bonn WS 8 february Bonn
12
3. Qualitative analysis (2):behavior of shippers is the result of organizational culture, impact primary market, lack of incentives and of shortcomings in the sec. market design
Primary capacity right holders show an overall lack of ‘an
appetite for trade’;
Impact (pre-liberalization) long term legacy contracts resulting
from the primary market allocation mechanism;
Lack of strong incentives:
– positive: prices on the prim. market are relatively low
– negative: firm UIOLI has never been applied
Shortcomings in the design of the secondary market
Directie Toezicht Energie, Bonn WS 8 february Bonn
13
3. Qualitative analysis (3): shortcoming secondary marketShippers experience the following shortcomings:
– non-transparency on available capacities, prices and capacity products;
– trade is non-anonymous on most markets;– lack of coordination between markets on the same
interconnection points – irregular trade (no concentration of supply and demand on fixed
times); – lack of standardized contracts;– a relatively long ratification time of a transaction by the TSOs;– some shippers also indicate that they experience (perhaps
perceive) legal bottlenecks for transactions on the secondary market.
Directie Toezicht Energie, Bonn WS 8 february Bonn
14
4. Way forwardObjectives of the workshop is to provide Enabler Group with input for Implementation Plans
Quick wins: – changes in the current secondary market design (input for the
EFET/Operators workshop on DA Capacity Auctions);– improvements in the current congestion management
procedures (primary capacity):• interruptible capacity product
– Input for other EU capacity work (EASEE-gas, EFET etc.)Long term wins:
– incentives for shippers to offer capacity on the secondary market:
• current primary market (input for the primary market group);• improvements in the current firm UIOLI design
Directie Toezicht Energie, Bonn WS 8 february Bonn
15
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
16
Discussion:subjects of discussion
Remarks on the general analysis of the secondary
market performance?
Remarks on the objective of the workshops?
Directie Toezicht Energie, Bonn WS 8 february Bonn
17
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
18
Outcomes discussion
Directie Toezicht Energie, Bonn WS 8 february Bonn
19
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
20
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
21 II Discussion on the way forward
Directie Toezicht Energie, Bonn WS 8 february Bonn
22
Discussion on the way forward (1):discussion on quick wins and long term objectives
Quick win
Long termwin
Directie Toezicht Energie, Bonn WS 8 february Bonn
23
Discussion on the way forward (2):timetable discussion
Directie Toezicht Energie, Bonn WS 8 february Bonn
24
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
25
Introduction discussion:options for changes in the current secondary market design => tomorrow to be further discussed in EFET/Operators workshop
Market mechanism Bilateral; Auction, Broker
Facilitating party TSO; trading office
Method of facilitation
Level of coordination No coordination; joint entry/exit product
Capacity products tradable
Level of transparency Specific vs general transparency
Regularity of trade
Implementation lead time Standard (max 10 days); direct implementation
Day; week; month; season; year
Central market place
Concentration of supply and demand (regular); irregular trade
(Various locations)
Directie Toezicht Energie, Bonn WS 8 february Bonn
26
Introduction discussion:Firm UIOLI mechanism
Performance:
Quantitative data shows that the firm UIOLI mechanism has never been applied in
NW-Europe
Current issues with the Firm UIOLI mechanism: Difficult to prove hoarding for anti-competitive reasons; Procedures Firm UIOLI take long and are time consuming.
Brainstorm: Formulate clear criteria that define hoarding for anti-competitive reasons; Evaluate current firm UIOLI procedures and make them less complex and time
consuming (for example by shortening the period during which hoarding for anti-
competitive reasons needs to be proved)
Directie Toezicht Energie, Bonn WS 8 february Bonn
27
Outcome discussion:Firm UIOLI mechanism
Directie Toezicht Energie, Bonn WS 8 february Bonn
28
Introduction discussion:Interruptible UIOLI mechanism
Performance:Interruptible is a popular capacity type on the primary market for
transmission capacity
Current issues with the Interruptible UIOLI mechanism: Shippers indicate they experience the product non-transparent;
– How is the amount of interruptible capacity that is offered on the primary
market determined by the TSO;– What are the criteria for interruption.
Brainstom: Formulate and publish clear criteria for the interruption of capacity; More transparency on utilization rate.
Directie Toezicht Energie, Bonn WS 8 february Bonn
29
Outcome discussion:Interruptible UIOLI mechanism
Directie Toezicht Energie, Bonn WS 8 february Bonn
30
Introduction discussion:Releasable capacity
– Rule 1 – For any shipper having subscribed more than 20% of
marketable firm annual capacities on the following points, a share R
of the part of its subscription exceeding 20% of marketable firm
annual capacities is converted into releasable capacities.
– Rule 2 - Releasable capacities are released, if requested by
GRTgaz, month by month, partially or totally, only if there is no
more or not enough available firm capacities.
Directie Toezicht Energie, Bonn WS 8 february Bonn
31
Agenda workshop 14:00 – 14:10 Introduction of the workshop by the moderator 14:10 – 14:30 Presentation of the results on a study of the performance of
the secondary market in the NW-European region 14:30 – 15:20 Discussion on results study and the focus of the workshop 15:20 – 15:30 Recapitulation by moderator of the discussion
15:30 – 15:45 Coffee Break
15:45 – 16:00 Introduction of the discussion on the way forward 16:00 – 16:45 Discussion 16:45 – 17:00 Recapitulation by moderator and conclusion workshop
Directie Toezicht Energie, Bonn WS 8 february Bonn
32
Outcome workshopQuick win(objective of this workshop)
Long termobjectives(outside the scope of this workshop)
Directie Toezicht Energie, Bonn WS 8 february Bonn
33
Back-upOverview
Motivations for not trading on sec.
market
Lack of appetite for trade
Influences
Impact primary marketInfluences
Lack of incentivesInfluences
Design of the secondary market
Influences
Outside the sphere of
direct influence
Long term recommendations
Short term recommendations