gas transmission pricing for bih - usaid eia · 2019. 7. 9. · gas transmission pricing / main...

Gas Transmission Pricing for BiH

Recommendations for Bosnia and Herzegovina

Jahorina, 1st of July 2019

Dr. Konstantin Petrov / Dr. Daniel Grote / Daniel Anton (DNV GL)

Agenda

Entry-Exit Model01

Gas Transmission Pricing02

Recommendations for BiH03

2

Quantitative Analysis of Options for BiH04

Entry-Exit Model / Design Features

3

▪ Mandatory access model for gas transmission system operators in EU and EC

▪ Independent booking of capacity at entry and exit points

▪ Facilitates gas trade

▪ Entry and exit points priced separately and tariffs may therefore differ

▪ Tariffs set to provide signals to encourage efficient utilization of the network

Production

Storage

LNG

N X

X

Cross border

N

Directly

connected

customers

Storage

Cross border

Trading

VP

Local LocalT

SO

le

ve

lD

SO

le

ve

l

X

Gas Transmission Pricing / Main Objectives

4

A good pricing regime should follow several objectives. In practice, the

achievement of a functional trade-off between the objectives may be challenging.

Ensure that the TSO can recover the revenue required for the transmission service. Revenue Recovery

Pricing design should provide adequate short and long-term signal to the TSO to

operate, maintain and expand the network.

The pricing methodology should encourage efficient operation, while keeping a

manageable regulatory burden.

Highly sophisticated approaches might promote efficiency at first sight, but may

appear as a “black box” to network users.

Level playing field should be created for all users. Users are treated equally

irrespective of size, ownership or other factors (e.g. transit vs. domestic).

Price changes may result when changing the pricing model. This will have an impact

on all stakeholders. Mitigation measures may be required.

Economic Efficiency

Efficient Regulation

Complexity & Transparency

Non-Discrimination

Stability & Stakeholder

Acceptance

ExplanationObjective

Gas Transmission Pricing / Revenue Setting

5

Allowed revenue should cover reasonable operating and capital cost needed for

provision of regulated services.

Opex Capital costs

Revenue Requirements

Regulatory Asset

Base (RAB)Rate of Return

Materials /

ServicesLabour Fuel gas

Return on

AssetsDepreciation

Gas Transmission Pricing / Tariff Design Options

6

Structure of network tariffs can be designed in several areas.

Possible differentiation of gas transportation network tariffs

Capacity

Charge

Commodity

Charge

Fixed Charge

Entry or exit

charges

Entry and exit

charges

Uniform tariff

(post stamp)

Locational tariff

(point based)

Flat tariff

Seasonal

factors

Duration(short / long-

term)

Firm /

interruptible

Forward /

Backhaul

Restrictions on

allocability

Price multipliers

Type of charge Entry-Exit splitRegional

differentiationTime of use Capacity product

Gas Transmission Pricing / Cost Allocation Schemes

7

▪ The models are just different mathematical ways to describe reality and aim to achieve fair cost allocation

and tariff setting

▪ Results may differ due to differences in the algorithms applied and the chosen cost drivers

▪ The Tariff Code prepared by ENTSOG includes Capacity Weighted Distance and Postage Stamp Model

Regulation (EU) 2017/460 (based on Tariff Network Code prepared by ENTSOG)

refers to Capacity Weighted Distance and Postage Stamp Model.

Capacity Weighted Distance Model

▪ Cost allocation based on the distance

between exit and entry points and capacity at

these points

▪ Provide locational signals through

geographical tariff differences

▪ Cost reflectivity relatively high

▪ Higher complexity in comparison to the

postage stamp model

Postage Stamp Model

▪ Cost allocation based on the capacity of the

exit and entry points

▪ No locational signals, uniform tariffs across

the transmission system

▪ Cost reflectivity relatively low

▪ Lower complexity in comparison to the

capacity weighed distance model

Recommendations / Gas Transmission System in BiH

8

The transmission system of BiH is based on a straight radial configuration with a

single entry point and is operated by three companies.

▪ Located in the FBiH and RS

▪ Total length of 234 km

▪ Operated by three companies

▪ Based on a straight radial configuration with a

single entry point and several national exit

points

▪ Gas is transported to distribution networks and

directly connected industrial end-users

▪ Differences in the development of the legal and

regulatory framework in the FBiH and RS

▪ Network tariffs in RS determined by regulatory

authority (RSERC)

Recommendations / Proposed Tariff Design

9

▪ Transparent and understandable

▪ Two principle options:

− Single entry-exit zone (preferred option)

− Two entry-exit zones FBiH / RS (transition or durable solution)

▪ Consider the administrative burden

▪ Reflect adequately potential system extension

(interconnections)

▪ Supported by quantitative modelling

▪ Reconciliation mechanism to ensure that the TSOs

receive their allowed revenues

▪ Slightly favor the application of the capacity weighted

distance cost allocation methodology

▪ 50:50 split between entry and exit tariffs

The transmission tariff structure should reflect the specific situation of BiH.

▪ Combination of capacity and commodity

charges, splitting allowed revenue between

capacity and commodity tariff elements, e.g. on

a 90:10 basis.

▪ Annual and shorter capacity products to provide

adequate options for network users

Quantitative Analysis / Transmission Tariff Tool

10

Transmission tariff tool used to calculate transmission tariff and support design

recommendations.

OutputInput Model

Depreciation

Return on Assets

Allowed

Revenue

Technical Capacities

Capacity

PortionTopology

Allocation

Keys

Entry-exit split

CalculationMarketable Capacities Tariffs

Tariff Derivation

Cost Allocation

1

2

3

4

Opex

Commodity

Portion

-

0.10000

0.20000

0.30000

0.40000

0.50000

0.60000

0.70000

0.80000

0.90000

Zvor

nik

Kara

kaj

Klad

anj

BA

M /

m³/

da

y/ye

ar

Tariff PS Tariff CWD

Entr

y Exit

Entry:

2.46 BAM/ thousand m³

Exit

1.85 BAM/ thousand m³Com

m

odity

CityTransmission Capacity Charges, cumulative

for delivery to End-User (BAM/m³/day/year)

PS CWD

Banja Luka - -

Brčko - -

Mostar - -

Sarajevo 5.80 6.19

Zvornik 5.80 3.80

Zenica 5.80 7.67

Results: Existing System with One Entry-Exit Zone

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Border Serbia -Bosnia and

Herzegovina (Šepak)

BA

M /

m³/

da

y p

er y

ear

0.000.501.001.502.002.503.003.504.004.505.00

Zvor

nik

Kara

kaj

Sara

jevo

Zelje

zara

Ilija

s

Vis

oko

Kaka

nj

Mit

tal S

teel

Zen

icaB

AM

/ m

³/d

ay

per

yea

r

Above Transmission Capacity Charges include all charges occurring in BiH Disclaimer: Results are based on assumptions (see specific slide)

-

0.10000

0.20000

0.30000

0.40000

0.50000

0.60000

0.70000

0.80000

0.90000

Zvor

nik

Kara

kaj

Klad

anj

BA

M /

m³/

da

y/ye

ar


Entr

y Exit

Entry:


Exit


m

odity

CityTransmission Capacity Charges, cumulative

for delivery to end-user (BAM/m³/day/year)

PS CWD

Banja Luka 6.47 8.40

Brčko 6.47 5.59

Mostar 6.47 7.00

Sarajevo 6.47 5.33

Zvornik 6.47 4.94

Zenica 6.47 5.60

Results: System with South and New East Interconnector

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50



Posusje (Entry) Novo Selo

BA

M /

m³/

da

y p

er y

ear

0.001.002.003.004.005.006.007.008.00

Zvor

nik

Kara

kaj

Sara

jevo

Zelje

zara

Ilija

s

Vis

oko

Kaka

nj

Mit

tal S

teel

Zen

ica

Trav

nik

Mo

star

Tom

isla

vgra

d

Kupr

es

Bug

ojn

o

Nov

i Tra

vnik

Bije

ljina

Der

vent

a

Do

boj

Prn

javo

r

Ban

ja L

uka

Mo

dri

ča

Brč

ko

Šam

ac

Bro

d (X

)

Lakt

aši

Gra

dišk

a

Prije

dor

Koza

rska

Du

bica

BA

M /

m³/

da

y p

er y

ear

Above Transmission Capacity Charges include all charges occurring in BiH Disclaimer: Results are based on assumptions (see specific slide)

Transmission

Capacity

Charges

cumulative

delivery to

end-user

(BAM/m³/day/

year)

Existing System: ✓ Existing System: ✓ Existing System: ✓ Existing System: ✓

South Interconnector: South Interconnector: ✓ South Interconnector: South Interconnector: ✓

New East Interconnector: New East Interconnector: New East Interconnector: ✓ New East Interconnector: ✓

City PS CWD PS CWD PS CWD PS CWD

For One Entry-Exit Zone

Banja Luka - - - - 6.63 8.55 6.47 8.40

Brčko - - - - 6.63 4.75 6.47 5.59

Mostar - - 6.03 6.32 - - 6.47 7.00

Sarajevo 5.80 6.19 6.03 5.98 6.63 6.16 6.47 5.33

Zvornik 5.80 3.80 6.03 6.28 6.63 4.21 6.47 4.94

Zenica 5.80 7.67 6.03 5.87 6.63 7.37 6.47 5.60

For Two Entry-Exit Zone

Banja Luka - - - - 4.74 6.71

See addtional scenarios slide

Brčko - - - - 4.74 3.53

Mostar - - 6.62 6.62 - -

Sarajevo 7.02 6.97 6.62 6.78 10.36 9.20

Zvornik 1.40 1.06 2.30 1.96 4.74 3.08

Zenica 7.02 8.16 6.62 6.53 10.36 10.39

Results: Estimation of transmission charges

Disclaimer: Results are based on assumptions (see specific slide)

Quantitative Analysis (I)

▪ The figure above shows the payments for transmission charges of an industrial customer located at the

exit point of Sarajevo connected directly to the transportation network (gas consumption of 10 million m³)

▪ The differences are caused by the allocated cost pools in the entry-exit zones, cost allocation schemes

and the capacities at the involved entry or exit points.

The choice of cost allocation model and zone configuration has an impact on

transmission charges.

83,494 99,491

83,494 99,491

75,516

92,758

86,091

91,359

43,131

67,162

43,131

67,162

-

50,000

100,000

150,000

200,000

250,000

300,000

Postage Stamp Postage Stamp Capacity-Weighted Distance Capacity-Weighted Distance

One Entry Exit System Two Entry Exit System One Entry Exit System

-Base-

Two Entry Exit System

Cost

s in

BAM

per

yea

r

Entry Share Exit Share Commodity Share


Total

Transmission

Charges

(Capacity +

Commodity)

in BAM per

year


South Interconnector: South Interconnector: ✓ South Interconnector: South Interconnector: ✓

New East Interconnector: New East Interconnector: New East Interconnector: ✓ New East Interconnector: ✓


For One Entry-Exit Zone

Banja Luka - - - - 4.22% 5.04% 3.83% 4.66%

Brčko - - - - 4.22% 3.41% 3.83% 3.46%

Mostar - - 3.27% 3.39% - - 3.83% 4.06%

Sarajevo 3.16% 3.32% 3.27% 3.24% 4.22% 4.02% 3.83% 3.34%

Zvornik 3.16% 2.30% 3.27% 3.37% 4.22% 3.18% 3.83% 3.18%

Zenica 3.16% 3.96% 3.27% 3.20% 4.22% 4.53% 3.83% 3.46%

For Two Entry-Exit Zone

Banja Luka - - - - 3.37% 4.21% - -

Brčko - - - - 3.37% 2.85% - -

Mostar - - 3.80% 3.80% - - - -

Sarajevo 4.05% 4.03% 3.80% 3.87% 6.86% 6.37% - -

Zvornik 0.75% 0.61% 1.53% 1.38% 3.37% 2.66% - -

Zenica 4.05% 4.54% 3.80% 3.76% 6.86% 6.88% - -

Share of Transmission Costs for Industry Customer with wholesale-price at 640 BAM per 1000 m³

Quantitative Analysis (II)

▪ The figure above shows the gas transportation network tariffs in four scenarios as a share of the total gas

price to be paid by an industrial user directly connected to the gas transmission network in Sarajevo.

▪ The upper block represents the estimated 96% other costs1, which cannot be allocated to the

transportation network. A two Entry-Exit System comes with slightly higher costs than with one zone only.

Transmission charges do not dominate gas bills of final consumers.

6,042,585 6,042,585 6,042,585 6,042,585

-0.17% 0.75% 0.00% 0.72%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Postage Stamp Postage Stamp Capacity-Weighted Distance Capacity-Weighted Distance

One Entry Exit System Two Entry Exit System One Entry Exit System

-Base-

Two Entry Exit System

Co

sts

in B

AM

per

yea

r

Entry Share Exit Share Commodity Share Non Transportation Difference in Wholesale Price compared to Base

1 with wholesale price of 640 BAM / 1000 m³, depending on regime Disclaimer: Results are based on assumptions (see specific slide)

Hvala!

Dr. Konstantin Petrov

Managing Consultant, Energy Markets & Technology

DNV GL Energy

DNV GL Energy Advisory GmbH

Zanderstr. 7

53177 Bonn

Germany

Phone: +49 173 5151946

E-Mail: [email protected]

Transmission

Capacity

Charges

cumulative

delivery to

end-user

(BAM/m³/day

per year)


South Interconnector: ✓ South Interconnector: ✓ South Interconnector: ✓ South Interconnector: ✓

New East Interconnector: ✓ New East Interconnector: ✓ New East Interconnector: ✓ New East Interconnector: ✓

Comment

Two Entry-Exit Zone

No Cross-Entity flow between

FBiH and RS

One Entry-Exit Zone

Lower Utilisation of capacities

due to expected lower demand

in 2025 (ca. 35% of projected

values of 2039)

One Entry-Exit Zone

Full Utilization

[Case shown here for

comparison purposes]

Two Entry-Exit Zone

Full Utilization

Capacities at Kladanj shared (bi-

directional network point)


Banja Luka 5.93 7.76 8.74 13.28 6.47 8.40 5.73 7.73

Brčko 5.93 3.80 8.74 8.05 6.47 5.59 5.73 4.32

Mostar 7.35 8.24 8.74 10.68 6.47 7.00 6.65 5.72

Sarajevo 7.35 4.52 8.74 7.56 6.47 5.33 6.65 6.81

Zvornik 5.93 3.25 8.74 6.84 6.47 4.94 5.73 3.68

Zenica 7.35 7.11 8.74 8.07 6.47 5.60 6.65 6.39

Appendix: Additional Scenarios


-

0.10000

0.20000

0.30000

0.40000

0.50000

0.60000

0.70000

0.80000

0.90000

Zvor

nik

Kara

kaj

Klad

anj

BA

M /

m³/

da

y/ye

ar


Entr

y (C

ountr

y)Exit (

Countr

y)

Entry:


Exit


m

odity

CityTransmission Capacity Charges for End-User

(BAM/m³/day/year)

PS CWD

Banja Luka 8.74 13.28

Brčko 8.74 8.05

Mostar 8.74 10.68

Sarajevo 8.74 7.56

Zvornik 8.74 6.84

Zenica 8.74 8.07

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50



Posusje (Entry) Novo Selo

BA

M /

m³/

da

y p

er y

ear

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Zvor

nik

Kara

kaj

Sara

jevo

Zelje

zara

Ilija

s

Vis

oko

Kaka

nj

Mit

tal S

teel

Zen

ica

Trav

nik

Mo

star

Tom

isla

vgra

d

Kupr

es

Bug

ojn

o

No

vi T

ravn

ik

Bije

ljin

a

Der

ven

ta

Do

boj

Prn

javo

r

Ban

ja L

uka

Mo

drič

a

Brč

ko

Šam

ac

Bro

d (X

)

Lakt

aši

Gra

dišk

a

Prije

dor

Koza

rska

Du

bica

BA

M /

m³/

da

y p

er y

ear

Consumption at 2025 level (lower contracted capacities) Disclaimer: Results are based on assumptions (see specific slide)

Appendix: Additional Scenarios, Low Consumption (2025 level)

Appendix: Multiple Entry-Exit Zones

▪ Not as transparent and understandable as single

entry-exit zone

▪ Higher administrative burden

▪ Costs of potential system extensions are not

distributed evenly (interconnections)

▪ Both capacity-weighted distance model and

postage stamp model show overall beneficial or

neglectable changes for most network points

▪ Additional regulatory burden in case of district

Brčko

▪ Lower security of supply compared to multiple

entries in case of system extension in single

zone.

The choice of cost allocation model and zone configuration has an impact on

transmission charges.

Disadvantages of Multiple Entry-Exit Zones

Sources and assumptions underlying the calculations

21

▪ Revenue Requirement Data

▪ Provided by operator companies as far as

possible (if not available, proxy/average

values were taken by the other operators)

▪ For South Interconnector assumptions

taken from CBA

▪ For New East Interconnector same ratio

applied as for CBA of South Interconnector

▪ Network Data

▪ Provided by companies as far as possible

for existing system

▪ Network length between network points for

South Interconnector taken from CBA

▪ Network length between network points for

New East Interconnector estimated with

point-to-point distances with additional

adjustment factor

▪ Capacity Data


for existing system

▪ For Southern Interconnector, exit

capacities estimated according to

projected maximum consumption in CBA;

contracted entry capacity reduced by 45%

than to what shown in CBA (2 million m³

entry capacity)

▪ For New East Interconnector, exit

capacities distributed according to

population at each exit point; entry

capacity as provided in the strategy

documents of RS

▪ Demand Data


for existing system

▪ For Southern Interconnector, capacities

estimated according to projected maximum

consumption in CBA

▪ For New East Interconnector, capacities

distributed according to population at each

exit point

▪ Other Data:

▪ Lifetime of new interconnectors set at 30

years, WACC at 5.05%, Opex at 4% per

year.

▪ Entry-Exit Split 50%-50%

▪ Capacity-Commodity Split 90%-10%

▪ Other settings:

▪ (Potential) network points of Brnjaci,

Busovača, Vitez and Ugeljevik due to

incomplete information / not operational

status not included.

▪ Regulatory Lifetimes set according to

international experience for sample

categories (constructions, equipment etc.)

gas transmission pricing for bih - usaid eia · 2019. 7. 9. · gas transmission pricing / main...

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