capacity allocation & congestion management€¦ · allocated across the eu • the first...

Capacity Allocation & Congestion Management

Methodologies, EU Acquis, Status Quo in Bosnia and Herzegovina and

Gap Analysis

21st of February 2019

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

Agenda

Introduction and Objectives01

2

Role of Capacity Management within Open-

Access Model 02

Coffee break (15:30)

Relevant EU Acquis on Capacity Allocation

and Congestion Management05

Status Quo in Bosnia and Herzegovina06

Overview on Principle Mechanisms and

Procedures03

Gap Analysis07

Next Steps08

Role of Capacity Management within Open-Access Model

Introduction: Objective & Scope

To best prepare and assist stakeholders in introduction of implementation

of Capacity and Congestion management in BiH

4

Objective:

Back-

ground

Implementation of according measures necessary due to

• adoption of according EU gas sector legislation by and for the Energy

Community

Directive 2009/73/EC concerning common rules for the internal market in

natural gas

Regulation (EC) 715/2009 on conditions for access to the natural gas

transmission networks;

Regulation (EU) 2017/459 establishing a network code on capacity allocation

mechanisms in gas transmission systems;

Regulation (EU) 2015/703 establishing a network code on interoperability and

data exchange rules

• implementation of an entry-exit system

• economic considerations

Introduction: Background

• It has been established that greater effort is needed to create a secure, competitive and low carbon European energy sector and a pan-European Internal Energy Market.

• Network codes are intended as a tool to reach this objective by complementing existing national rules to tackle cross-border issues in a systematic manner.

• Network codes complement Regulations (EC) No 715/2009 and further detail and clarify the Regulations’ provisions in light of operational procedures and implementation.

5

Why Do We Need Network Codes?

How European liberalization changed traditional models in the gas system

6

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

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

Entry-Exit System

8

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

Capacity & Congestion Management: Background & Definitions

9

• Following descriptions based on Entry-Exit model, i.e. network users book

capacity at entry and exit points, capacity is independent of transportation

distance (as compared to the point-to-point-model)

• ‘Interconnection point’ means a physical or virtual point connecting

adjacent entry-exit systems.

• Capacity management is based on explicit capacity arrangements

• Capacity arrangements applicable for national and cross-border markets

• No separate treatment of transit capacities

Background & Definitions

10

• Capacity management

− Used as a major and integral term and sets of rules how to allocate capacity

− Capacity allocation without problems, as long as no physical or commercial

(contractual) congestion exists

− Explicit rules for capacity allocation necessary if congestions occur

− Capacity allocation methods may have a large impact on the appearance of

congestions

• Capacity allocation

− From the Latin "locare" = place, apportion

− Allocation/granting of (scarce) capacity to network users (shippers)

− Several methods for capacity allocation (next slides)

• Congestion management

− Mainly focused on physical congestion

11

Non-discriminatory access for

establishment of competitive environment

AllocationCapacity

assessment

Capacity definition

(Products)

Balancing General network access model

(Entry-Exit model)

PricingImplementation

and steering

Capacity

management

Major

Objective

Network

access

areas

Tasks of

capacity

allocation

and

congestion

management

Congestion Optimisation

Congestion Management: what does is comprise of?

Capacity Management - Overview

Shippers’ activities:

12

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)

Overview on Principle Mechanisms and Procedures

Capacity Management - Overview

Activities of Network Operator:

14

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

15

• 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

shippers16

• 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 17

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 load is lower than the amount of booked capacity

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

allocation) > Capacity Optimisation

18

Sum of all bookings

Max

technical

capacity

Actual flow

Max

technical

capacity

Actual flow


Why to mitigate congestion?

Effective congestion management is required to ensure “fairness“.

Required congestion management depends on type of congestion:

• Commercial congestion: Freeing up unused capacity for the market

• Physical congestion: Ensure efficient use of scarce capacities

19


1. Congestion management during capacity allocation process• If demand exceeds supply, capacity allocation needs to aim at

economically efficient results• Pro rata capacity allocation can ensure that no new entrant is excluded

• Auctions provide transparent congestion signals and funds for capacity expansion

• Use-It-Or-Lose-It frees up additional capacities on short notice• Restricting intra-day renominations may firm up

2. Congestion management during everyday network operations• Interruptions of interruptible capacities

• Refining assumptions/simulation algorithms for capacity calculation

• Deployment of commercial solutions, e.g. capacity buy-back, load flow commitments, etc.

• Effective use of linepack and storage capacities (as far as controlled by TSOs)

20

Physical congestion mitigation

21

Administrated(mandated restrictions

and changes)

Voluntary(based on voluntary arrangements)

Counterpart Shippers ShippersInfrastructure

operators

Capacity

0) Normal Operating

Conditions

1) Interruptible /

Conditional capacity

2) Locational

restrictions

3) Capacity buy-

back

Commodity/

Nominations

4) Locational trades

5) Load-flow

commitments

6) TSO-contracted

storage

7) Locational swaps

8) TSO-to-TSO swaps

9) Re-routing

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 markets22

Capacity Allocation and Congestion Management

—EU Acquis

What does it aim at?

• To harmonise how is capacity allocated across the EU

• The first version of the CAM NC of 2013 had been in place until the amended CAM NC came into force on April 2017and repealed it.

24

EU Acquis in the Natural Gas Sector

• Directive 73/2009 (EC)

• i.e. Regulation (EC)

715/2009

• Regulation (EU)

2017/459 establishing a

network code on capacity

allocation mechanisms in

gas transmission

systems;

• Regulation (EU)

2015/703

What does it mean for BiH?

NC CAM has now also been adopted for the Energy Community

• transposition deadline: 28 August 2019

• implementation deadline: 28 February 2020

Gas Network Codes Development Process

25

Network Code Delivery

Commissi

on

ACER

ENTSO-G

Council /

Parliamen

t

Stakeholder

s

Priority

setting

Framework

Guidelines

Define

Code

Project

Plan

Code

Proposal

Developmen

t

Comitology

Pre-

Comitology

Evaluation

–

Approval

Code

Finalizatio

n

Stakeholder joint working sessions, technical

workshops and consultations.

Energy

Communit

y

Ministerial Council

adoption

Network Code Adoption and Implementation

EU NC CAMWhat are the key elements?

Introduction Background & Definitions

1. Capacity Allocation Rules

1I.Booking horizons, capacity calculations, and

timings

III. Incremental capacity process procedure

IV. Congestion Mitigation Processes

EU NC CAM: BackgroundRequirements and Outcomes

• Provide appropriate economic signals for efficient and maximum use of capacity.

• Be compatible with market mechanism while being flexible and capable of

adapting to evolving market circumstances.

• Be compatible with connected network access system.

• Outcome of NC CAM appears to be “socialisation” of infrastructure costs.

• Increasing role of regulators in overseeing and implementing infrastructure

projects.

• Higher burden for gas consumers who, in return, get a common system as a basis

for large liberalised, and thus more competitive gas market.

Results of NC CAM

EU NC CAM: BackgroundTimeline

• The first CAM NC, which sought to establish regulatory procedures in respect of allocation of existing – as opposed to incremental capacity, was adopted on 14 October 2013 (CAM NC 2013).

• It was repealed on 6 April 2017 when the 2017 CAM NC was adopted and entered into force.

• The 2017 CAM NC has a wider scope than its 2013 predecessor as it includes detailed regulatory provisions in respect of both existing and incremental capacity.

28

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.

29

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: BackgroundNew Definitions

Incremental Capacity (Art. 3.1)

• ‘a possible future increase via market-based procedures in technical

capacity or possible new capacity created where none currently

exists that may be offered based on investment in physical

infrastructure or long-term capacity optimization and subsequently

allocated subject to positive outcome of an economic test, in the

following cases:

at existing interconnection points;

by establishing a new interconnection point or points;

as physical reserve flow cap

30

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)

31

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

32

# 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

33

• 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

EU NC CAM: booking horizons, capacity calculations, and timings

• The CAM NC stipulated that yearly capacity auctions are to be held once a year, with the auction process to ‘offer capacity at least for the upcoming 5 gas years and for no longer than the upcoming 15 gas years for existing capacity’ (Art. 11.3)

• Yearly capacity auctions shall start on the first Monday of July each year (Art. 11.4)

(Art. 11.8) TSO‘s obligation to notify users, a month before the auction, about the amount of firm capacity for each year.

34

• The capacity to be offered during the yearly auction shall be equal to:

A: is the TSO’s technical capacity;

B: is the amount of technical capacity (A) set aside in accordance with reservation quotas

C: is the previously sold technical capacity, adjusted by the capacity which is re-offered in accordance with applicable CMP

D: is additional capacity for such a year, if any;

E: is the incremental capacity for such a year included in a respective offer level, if any;

F: is the amount of incremental capacity (E), if any, set aside in accordance with Art. 8.8 and Art. 8.9 (reservation quota).

A – B – C + D + E – E

EU NC CAM: booking horizons, capacity calculations, and timings

35

The CAM Network Code: Incremental Capacity Process Procedure

• Other than ‘auction’ is possible upon RA’s approval, where reasonable market demand assessment proved auction unsuitable.

1. Demand assessment: Network users can submit non-binding indications of demand for gas transport capacity at entry-exit system borders to the TSOs. The TSOs must assess these demand indications as part of a demand assessment that normally takes place every two years.(Article 26 NC CAM)

2. Design and economic test: If the market demand assessment positive >, the TSOs begin the design phase (Article 27 NC CAM). This includes: the modelling and design of any network expansion that may be necessary, in technical studies; and public consultation of TSOs.

3. Auction and market testing: Once approval has been granted, the new capacity is offered to the market for binding booking together with any existing capacity.

If the outcome of the economic test is positive – in other words sufficient binding capacity is booked to cover the specified proportion of investment costs – the gas transport capacity must be created by the TSOs concerned. The project will then be included as appropriate in the network development plan, at the size confirmed by the market.

36

Congestion Management Procedures

They require companies to make use of their reserved capacity or risk losing it. Unused capacity is placed back on the market.

• Commission Decision (EU) 2015/715/EU amending Annex I to Regulation (EC) 715/2009 on conditions for access to the natural gas transmission networks

• Commission Decision on conditions for access to the natural gas transmission networks [2012/490/EU]

• Guidance on best practices for congestion management procedures in natural gas transmission networks [SWD(2014) 250]

37

Contractual congestion mitigation

38

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

Capacity Allocation and Congestion Management

—Status Quo in BiH Transport

System

Bosnia and Herzegovina – Status Quo

40

Legal Framework

State BiH

Does not have jurisdiction in this domain

Republika Srpska

Law on Gas (March 2018)

Transport Network Code of Republika Srpska (January 2010)

Relevant provisions of Third Package are transposed

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


41

Republika Srpska - Law on Gas provisions

Article 49 – Defines Capacity Allocation and Congestion Management as part of Transport Network Code:

Article 50 – Provides more requirements about Capacity Allocation and Congestion Management Capacity allocation mechanisms need to:

Be Transparent and non-discriminatory

Provide economic effects for efficient and maximum use of technical capacity

Be compatible with market mechanisms

Be compatible with rules for access to transport system

Congestion management procedures are based on principles:

Transparency and non discrimination

In case of contractual congestion, TSO offers unused capacity on primary market at least on day ahead and interruptible basis

System users are entitled to resell unused capacity on the secondary market


42

Republika Srpska – Transport Network Code provisions

Article 5 – Definitions

Congestion management is defined as management of transport system capacities with objective of optimal and maximal usage of technical capacity and opportune envisage of congestion place

Contractual congestion is situation in which demand for non-interruptible capacities exceeds technical capacity


Activity Responsible Art.

No.

Timelines

Publishes data on technical and

available capacity in transport system

TSO 7. Latest till Sep 1st for the next

year

Submits request for access to system Network user 8. From Sep 1st till Oct 1st

Allocates capacity TSO 10.

Adopts decisions on requests for

access to transport system

TSO 11. Latest till Nov 1st

Submits contracts which prove that

requested quantities and capacities

are secured and financial guarantees

are met

Network user 11. Latest till Dec 1st

Submits complaint to RERS on

decision (in case access is denied)

Network user,

RERS

12.

Sign contract on use of transport

system

TSO, Network

user

13. Latest one month after the

submission of proofs for

requested quantities and

capacities43



44


Content of Request for access to transport system

General data about Requestor

Data about requested capacity per entry/exit points Minimum and maximum hourly capacity (Sm3/day)

Maximum daily capacity (Sm3/h)

Maximum annual capacity (Sm3/h)

Data about requested pressure per entry/exit points Min and max pressure (bar)

Planned annual gas volume on monthly level

Duration period


45


Allocation of Capacity

Done separately for each entry and exit point

Accounting element “Capacity” is equal to the maximum daily capacity (from request)

All capacities are accepted if sum of all requested capacities is not greater than 5% from maximum available daily capacity

Advantage is given to Network users by the order of Request submission


46


Criteria for approval/rejection of Request

Possibility to provide requested capacity in planned period in entire system

Ratio between gas pressure on entry point and requested pressure on exit point

Quality of gas (chemical composition, lower calorific value, allowed deviations, etc...)

Technical possibilities of metering and regulation equipment

Possibility for network user to secure additional quantities of gas for coverage of compressor operation


47

Republika Srpska – Implementation

Capacity allocation:

Long term

Short term

Non-interruptible

Interruptible

Congestion management

No re-offer of unused capacity to primary market on:

Day ahead basis

Interruptible basis

No capacity trade on secondary market

Third party access in practice:

Is granted only to incumbent suppliers

Gap Analysis

Gap Analysis

49

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 Network Code

Requirements ofCapacity Allocaiton Not defined Not defined Art. 50 of Network

Code

Requirements of Congestion Managment Not defined Not defined

Art. 50 and 5 (definitions) of Network Code

Next Steps

50

Analyze international experience

(incl. Serbia and Croatia)

Interim report shared with stakeholders,

opportunity to comment in writing

Development of recommendations

(+ integrating stakeholder feedback)

Presentation and discussion of recommendations

at 2nd meeting (May 2019)

Submission of final report

(integrating stakeholder feedback)

Draft interim report(covering concepts, international experience, current situation in BiH

and gap analysis)

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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