““EU Gas Regulation update”EU Gas Regulation update”

CopenhagenCopenhagen(12 October 2016)(12 October 2016)

Jean-Michel GlachantJean-Michel Glachant(Thanks to Sergio Ascari & Ilaria Conti) (Thanks to Sergio Ascari & Ilaria Conti)

Florence School of RegulationEuropean University Institute (Florence, Italy)

Overview• 1/ “Opening a gas market at EU level” The EU Gas Target Model

• 2/ The EU regulatory frame Directives, “Regulations”, Guide Lines, & Codes • 3/ Beyond the EU Internal Market *Beyond the Market Institutional Frame: as Juncker’s Commission,

“Energy Union”, etc. **Beyond the Market Policy Goals: as Internal & External SoS, PCIs,

Solidarity, etc.

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Overview• 1/ “Opening a gas market at EU level” The EU Gas Target Model (slides 4 à 12)

• 2/ The EU regulatory frame Directives, “Regulations”, Guide Lines, & Codes • 3/ Beyond the EU Internal Market *Beyond the Market Institutional Frame: as Juncker’s Commission,

“Energy Union”, etc. **Beyond the Market Policy Goals: as Internal & External SoS, PCIs,

Solidarity, etc.

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Must be >20 Bcm (ca. 210 TWh )/year

If cannot comply with above requirements, a national market can:•Merge with other national markets•Build a common “trading region” with other markets (same entry-exit zone but separate balancing)•Become a “satellite” of a liquid market

Trading to occur in liquid, competitive market zones (virtual hubs) – in exchanges or over the counter

Each zone is both an entry-exit tariff system and a balancing zone

Connected to at least 3 different sources (Production, LNG or pipeline imports)

EU GAS TARGET MODEL (1)EU GAS TARGET MODEL (1)

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Connection between zones allocated by auctions

Mandatory Third Party Access (TPA) to pipelines

Strong unbundling of transportation pipelines from suppliers/producers

Legal unbundling of distribution network

EU GAS TARGET MODEL (3)EU GAS TARGET MODEL (3)

Retail competition for all customers: Price controls to be eliminated

Legal unbundling of distribution network

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Detailed common Network Codes to harmonise market rules

Trading arrangements defined by market forces under regulators’ supervision - no network codes

Limited unbundling of distribution network, retail competition not common, regulated end-user prices available

Strong unbundling of transportation pipelines from suppliers/producers

Trading at physical hubs

No mandatory Third Party Access (TPA) to pipelines but liquid trading of private transportation rights

OTHER MARKET MODELS: USAOTHER MARKET MODELS: USA

Distance based, point-to point based tariffs

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EU GAS HUBS & MARKETSEU GAS HUBS & MARKETS

Source: P. Heather, Oxford Institute for Energy Studies

ACER GTM Update January 20152011 initial GTM Metrics (3)

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THE SLOW DEVELOPMENT THE SLOW DEVELOPMENT TOWARDS THE EU GTMTOWARDS THE EU GTM

Two liquid hubs in UK, Netherlands

Semi-liquid hubs in Germany, France, Belgium, Italy, Austria

Iberia and Eastern Europe trailing due to dominant (domestic & external) suppliers, limited regulatory action; yet competition growing

Many “balancing hubs” may co-exits, but forward trading (hedging) concentrates in the liquid markets

No zone mergers or “trading regions“ finalised. Most smaller markets achieved or move towards “satellite” conditions (IE, DK, PL, CZ, SK, HU, SI, HR)

ACER GTM Update January 2015

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ACER GTM Update January 2015(2)

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ACER GTM Update January 20152015 New GTM Metrics(4)

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Overview• 1/ “Opening a gas market at EU level” The EU Gas Target Model

• 2/ The EU regulatory frame Directives, “Regulations”, Guide Lines, & Codes • 3/ Beyond the EU Internal Market *Beyond the Market Institutional Frame: as Juncker’s Commission,

“Energy Union”, etc. **Beyond the Market Policy Goals: as Internal & External SoS, PCIs,

Solidarity, etc.

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Grids : °more comprehensive federal frame in EU but still enforced by MS regulators (no federal regulator FERC) + °grid regulation submitted to “market opening target” but still mainly state operated (no regional RTOs - ISOs) + °EU “mutualisation” TSOs&Regulators: EN.TSOs &ACER (RTO/FERC proxies?) + °Independence DG COMP

Markets: °EU Target Models + °Regional Initiatives + °ACER + °EN.TSOs + °REMIT: Market Integrity & transparency

Energy Mix: °EU RES scheme + °EU ETS = EU comprehensive scheme

Institutions: °Strong US energy federal regulator in a smaller area; °No role for US Competition opposite to DG COMP; °US State regulators independent from federal as opposite to EU “ruling” MS regulators; °Strong US Environmental federal Regulator vs EU stronger directives>> US implementation stronger but Scope smaller (except Competition)

Reg.Building: EU vs US

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EU regulatory framework

"REGULATION"

SECONDARY

LEGISLATION

PRIMARY

LEGISLATION

Treaty

(Art. 194)

DecisionsRegulation

(EC) 714/2009

GuidelinesNetwork

Codes

Directive

2009/72/EC

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The EU process • 20 years Journey with 3 Big Legislative “Packages” (“Directives” + “Regulations”)• Plus other EU Laws after 3d Package (as Infrastructure Package; or SoS Regulation)

• + Implementation of 3d Package with “detailed Regulation”: the Guide Lines & Network Codes

• Update of 3d Package: “Winter package” 2016 +/- “Energy Union” implementation

16EUI

Network Codes Implementation

The EU Third Energy Package (2009)

17EUI

18EUI

What are the network codes?Network codes are set of rules originating from the Third Package and aiming to facilitate the harmonisation, integration and efficiency of the European electricity and gas market.The Network Codes provide the detail to market regulation and eliminate trade barriers deriving from different national rules.

Tariffs(2017)

Balancing(2016)

CAM(2015)

CMP(2013)

GAS Network CodesGAS Network Codes

19EUI

CMP(2013)

The Network Codes provide the detail to market regulation and eliminate trade barriers deriving from different national rules

CMP – Congestion Management Procedures Network Code

Harmonises rules on both sides of an interconnection Point ensuring unused capacity is offered to other shippers

Capacity Allocation Management

Ensuring that rules to buy pipeline capacity are simplified, harmonized and synchronised across Europe

20EUI

CAM(2015)

Balancing Network Code

Establishing an identical cross-border balancing market for shippers across Europe 

21EUI

Balancing(2016)

Tariffs Network Code

Ensuring that countries do not discriminate between cross-border and domestic flows (e.g. by making one, usually cross-border, pay for the other)

22EUI

Tariffs(2017)

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ACER urges TSOs and NRAs to complete the implementation of congestion management measures in gas21/09/2016

The European Commission (EC) Guidelines on Congestion Management Procedures (CMPs) are binding since October 2013.  The Agency is in charge of monitoring the implementation of the CMP guidelines and the Network Codes. The current update shows the most recent implementation status across the EU. Although improvements are visible since 2014, the full implementation was not achieved. 

Two years after the first ACER Implementation Monitoring Report on gas Congestion Management Procedures (CMP), the Agency publishes today an updated Report in which it presents numerous shortcomings and delays in the implementation process. The Agency urges Transmission System Operators (TSOs) and National Regulatory Authorities (NRAs) to implement all the remaining actions foreseen in the EU legislation as soon as possible.   

ACER Report 21 September 2016

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Main findings: CMPs are fully implemented in most Member States except Bulgaria, Italy, Hungary, Portugal, Romania and Spain.

Actual CMP application was limited in 2015, except at Dutch, German and Austrian interconnection points (IPs).

A dynamic re-calculation of technical and additional capacity by all TSOs at a higher frequency would contribute to the maximization of the capacity offer.

The capacity products’ range for the surrender mechanism has to be enlarged in some Member States to be in line with the legal obligations.The harmonisation and coordination of CMP applications could be further improved, building on positive practical experiences in terms of coordination, such as those of the South Gas Regional Initiative.Transport and CMP data quality and completeness at ENTSOG’s Transparency Platform requires further improvements with the help of TSOs and NRAs.

ACER Report 21 September 2016 (2)

Overview• 1/ “Opening a gas market at EU level” The EU Gas Target Model

• 2/ The EU regulatory frame Directives, “Regulations”, Guide Lines, & Codes • 3/ Beyond the EU Internal Market *Beyond the Market Institutional Frame: as Juncker’s Commission,

“Energy Union”, etc. **Beyond the Market Policy Goals: as Internal & External SoS, PCIs,

Solidarity, etc.

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Energy Union is / isn’t…•Is’nt new Institution for EU energy policy: NO institution created•is political “novelty” Commission Juncker with ‘Vice-President EnerUnion’ Sefcovic > Comm. Canete who >> both Climate&Energy•~ unveiled 25th Feb. 2015 Hardly foreseen @Barroso Commission (2013-14) // EnerUnion = about 25 proposals of action •~ in touch with EU Council March 2015 EU Council (Heads of State & Gov.) agreed EC go ahead with EnerUnion•~ nevertheless a gamble No institution created: Council of ministers &Parliament have to agree any legislative proposal…•NB: Ener.Union Manifesto don’t strictly tie anybody: even Commission can change having seen what blocks / what goes26

Commission 25 Feb. 2015 proposals New Priority for SoS & “External” Governance?

New EU actions for Security of Supply#SoS *Legislation: Revision Gas Regulation by 2015-2016**Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)*** Implementation of existing PCIs with adequate financing** **Strategy for LNG an its storage** ***Council 19-20 March 2015 : feasibility of gas joint-buying mechanism

#Ext. Energy Governance ** ***Legislation: Revision Decision International Agreement for Commission to intervene ex ante before signature of agreements with 1/3 countries** ** **Coordination Commission / HR-VP / MS to create international diplomacy for energy & climate issues; for international treaties (as TTIP) or within WTO, and launch new initiatives (as agreement with India, with China ;etc) in field RES, Ener.eff, etc.27

Projects of Common Interest

• Internal Market with ‘No Seams’, delivering 2020/2050, with SoS, Solidarity + Old ‘Council Barcelone’ 10% interco

• Regulation 347/2013 ‘Trans-European Energy Infrastructure’ with ‘priority corridor’ & ‘Connecting Europe Facility’ fond Euro 50bn

• Hardware part of Internal Market achievment: where ‘market’ won’t deliver, EU ‘planning push’ could help

• October 2013: 132 power PCIs ¤several MS (non MS on top) ¤several criteria (monetized) ¤NRAs agreeing on cost allocation (ACER appeal) ¤End 2014 13 cases (12 NRAs; 1 ACER) > See Florence School Policy Brief 2015/01 for review

• ACER Threshold (10% net benefits); Net Costs > revenues; only net losers or not? Binding contract or not? Interactions between PCIs?

• ABC of CBA Florence School Policy Brief 2013/03

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Energy Union only <mini> to boost Internal Market >> Eurelectric, Eurogas new tag on (existing institutions + BAU) = let’s call it Ener.Un: it targets ’Only’ ‘Internal Market’ extended to RES & Capacity Mechanism made fully ‘market based’ & ‘technology neutral’.

However such EnergyUnion-BAU ends a bit undefined: ¤ MS have strong powers to take ‘outside the market’ initiatives #Germany: NordStream2 with 2nd unregulated Gazprom pipe entering the core of EU gas market#UK: SoS being Capacity mechanism + LT contrat with UK Nuclear ¤ >> Then: at what speeed Commission could follow or catch-up MS?For ex. Action against ‘MS’ capacity mechanisms via ‘State Aid’ enquiry

Alternative Energy Union(s)? ~1 / EU Internal Market BAU?

Commission 25 Feb. proposals? ~2 / >BAU for Internal Market & Governance?

EnergyUnion (not 4th Pack.) BUT big Upgrade for Internal Market & Governance: Programme from February 2015

#Elec. Market *Legislation 2016; retail & wholesale; integrating RES; phasing out non market based support; coordinating Capacity Mechanisms .**Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)

#Governance***Review framework from 3d Package notably for ACER (to ++power of Europeanizing regulation) & ENTSOs (to ++ as regional operational entities to create)****Propose guidance for ‘regional cooperation for market integration’ and to act at regional level wih regu. Bodies, MS and stakeholders*****Create ‘Energy Infrastructure Forum’ with MS, Regional coop. Groups, and EU institutions (ACER? Banks?) by late 2015

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Commission 25 Feb. proposals ~3 / Not BAU for SoS & “External” Governance?

2- EU actions for Security of Supply#SoS *Legislation: Revision Gas Regulation by 2015-2016**Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)*** Implementation of existing PCIs with adequate financing** **Strategy for LNG an its storage** ***Council 19-20 March 2015 : feasibility of gas joint-buying mechanism

#Ext. Energy Governance ** ***Legislation: Revision Decision International Agreement for Commission to intervene ex ante before signature of agreements with 1/3 countries** ** **Coordination Commission / HR-VP / MS to create international diplomacy for energy & climate issues; for international treaties (as TTIP) or within WTO, and launch new initiatives (as agreement with India, with China ;etc) in field RES, Ener.eff, etc.31

Commission 25 Feb. proposals? ~4 / Not BAU for Sustainability

Fields of EU actions for sustainability: *Legislation to revise EnerEff directive &make proposals to meet 2030target**RES package by 2016-17 incl.sustainable &cost-effective biomass, biofuels*** Legislation to achieve Oct2014GHG target in ETS & non-ETS sectors** **Legislation ‘Full Road Transport Package’ covering efficient pricing of infrastructures; rool-out of intelligent transport; enhancing ener.eff-------------------------------------------------------------------------------------------------------** ***Strategy to facilitate Investment in efficient ‘Heating & Cooling’** ** **Create Smart financing for smart buildings fund** ** ***To push MS & regions to use more the funds to renovate housings-------------------------------------------------------------------------------------------------------**** **** Strategy for transport research & innovation agenda**** **** *Revision ‘Strategic Energy Technology Plan’

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How to conclude? #I don’t know! # To be seen in 2017-19…

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www.florence-school.eu 34

Thank you for your attentionEmail contact: jean-michel.glachant@eui.eu

Follow me on Twitter: @JMGlachant already 21 000+ tweets

Read the IAEE Journal I am chief-editor of: EEEP “Economics of Energy & Environmental Policy”

My web site: http://www.florence-school.eu