Florence School of Regulation – Updating the Gas Target Model Can Business Requirements be met by current markets ? Workshop 13 March 2014, Brussels Frank van Doorn Head of Gas Trading Vattenfall Energy Trading Main Requirements for a functioning Gas Market • Transparency • How are tariffs determined ? • Uniform Format for Gas Flows and Gas Capacity Publications • Stability • Regulatory changes are seen as a major market risk.. • Clear Regulatory Framework • Focus on regulating the capacity activities of (monopoly) grid operators, not of the commodity (framework only) And… • ‘Operational Ease’ Functioning & Connecting Markets Vattenfalls Point of View • Trust in the TSOs – no need for a witch hunt • Regulation should focus on monitoring and guiding (a) cost, (b) tariffs and (c) services • No Need to remove ‘All Barriers’ i.e. all differences between grids… probably too complex and too costly • Markets can deal with differences • Uncertainty around TSO services is a barrier… • As a next step after the Gas Target Model, the EU needs to look at specific issues rather than ‘another layer of regulation’ • Specific problems in specific countries • Strategic Investments as part of a common Energy Policy Some Data around Cross Border Capacity • Where do we still see location differentials ? • It’s Physical… Source: ICIS Some Data around Transport Capacity (2) • Market Signals to acquire Cross Border Capacity ? NL/D Example • On 32 days (12%) during 2013, the Day Ahead Price Differential between NCG/TTF exceeded the annualized cost. In the other direction, only on 13 days (5%) 2013 Germany / Netherlands Spread (NCG/TTF), [EUR/MWh] Location Differential higher than Transport Cost (NL > D-NCG) 1.50 1.00 0.50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (0.50) (1.00) (1.50) Location Differential higher than Transport Cost (D-NCG > NL) Operational Requirements from a Portfolio Perspective • From the perspective of a Re-Seller i.e. a shipper that buys gas at the traded markets and sells on to end users • Suppose we acquire a 1 TWh/year customer.. • Main Requirements: • Forward Hedging in the country of delivery or in a correlated market • Prompt (Day Ahead) Market depth to balance portfolio • Flexibility (= Storage Capacity or Intra Day market), especially in Hourly Balanced Systems • Stability of Balancing Regime • Predictability of Cost Operational Requirements from a Portfolio Perspective (2) • Netherlands, Germany: no major complaints • France: • Relatively little Market Depth Day Ahead; Storage Requirements • Poland: • No forward liquidity; correlation with German markets unclear; some day ahead trading; Storage Requirements Conclusion 1. Gas Target Model: is OK, but Network Codes really support better working markets 2. Some practicalities are not addressed by Gas Target Model 3. Circumstances such as number of active parties and available technical capacities have an important influence on market functioning 4. No more Legislation needed, but specific attention to country specific issues Thanks for your attention ! [email protected] – Head of Gas Trading [email protected] – Regulatory Affairs