Copenhagen,12 October 2016.

1. ““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 Regulation
European University Institute (Florence, Italy)

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.
2

3. 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.
3

4. 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)
4

5. 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
5
Detailed common Network Codes to harmonise
market rules

6. 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
6

7. 7
EU GAS HUBS & MARKETSEU GAS HUBS & MARKETS
Source: P. Heather, Oxford Institute for Energy Studies

8. ACER GTM Update January 2015
2011 initial GTM Metrics (3)
8

9. 9
THE SLOW DEVELOPMENTTHE 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)

10. ACER GTM Update January 2015
10

11. ACER GTM Update January 2015
(2)
11

12. ACER GTM Update January 2015
2015 New GTM Metrics(4)
12

13. 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.
13

14. 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
14

15. EU regulatory framework
"REGULATION"
SECONDARY
LEGISLATION
PRIMARY
LEGISLATION
Treaty
(Art. 194)
Decisions
Regulation
(EC) 714/2009
Guidelines
Network
Codes
Directive
2009/72/EC
15

16. 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

17. The EU Third Energy Package (2009)
17EUI

18. 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

19. 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

20. Capacity Allocation Management
Ensuring that rules to buy pipeline
capacity are simplified, harmonized
and synchronised across Europe
20EUI
CAM
(2015)

21. Balancing Network Code
Establishing an identical cross-border
balancing market for shippers across
Europe
21EUI
Balancing
(2016)

22. 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)

23. 23
ACER urges TSOs and NRAs to complete the implementation of congestion management
measures in gas
21/09/2016
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

24. 24
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)

25. 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.
25

26. 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 goes
26

27. 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

28. 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
28

29. 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?

30. 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
30

31. 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

32. 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’
32

33. How to conclude?
#I don’t know! # To be seen in 2017-19…
33

34. www.florence-school.eu 34
Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
Follow me on Twitter: @JMGlachant already 21 000+ tweets
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“Economics of Energy & Environmental Policy”
My web site: http://www.florence-school.eu