Macroeconomic Effects Regarding Congestion Management in Europe

EXECUTIVE SUMMARY

Non-discriminatory and efficient access to cross-border capacity is a key to competitive European gas markets. DG Competition of the European Commission stated in its sector inquiry1 that European Interconnection Points (IPs) suffer extensively from contractual congestions. Contractual congestions occur if the full capacity is booked in advance, preventing market parties from getting access to the transport capabilities in the shorter term, but only part of the capacity is actually used for the physical gas transport. The European regulators responded to this problem by issuing two draft guidelines: The Pilot Framework Guideline on Capacity Allocation (CAM) and the recommendations for Guidelines on Congestion Management Procedures (CMP). With the aim of preventing, or at least limiting, contractual congestions, ERGEG proposes the introduction of several new principles in these guidelines with respect to access to cross-border capacities. The Bundesnetzagentur (Germany), the Commission de Régulation de l'Energie (France) and E-Control (Austria) asked E-Bridge to analyse the macro-economic effects resulting from the application of the two guidelines. The macro-economic evaluation considers quantitative and qualitative evaluation criteria. The main quantitative evaluation criteria are the Total Social Welfare Gain (gross benefits) and the convergence of market prices. The main qualitative criteria are market liquidity and the impact on market structure, namely influences on the number and structure of competing market parties. The resulting present study does not analyse all aspects of the two drafted guidelines, but instead focuses on the introduction of a) the firm day-ahead "use it or lose it" (UIOLI) principle (as part of the CMP) and b) bundled products as well as a virtual interconnection point (as part of the CAM).2 The firm day-ahead UIOLI principle provides that transport capacity, which is not booked, must be returned to the market parties. This mechanism requires that the rights to make changes to the nominations after day-ahead (re-nomination rights) must be constrained. Bundling of products has the aim to harmonize entry and exit capacities. This shall ensure that transaction costs of trading via an IP will be reduced as market parties will not face the risk of un-harmonized allocation of exit- and entry capacities. Also the reduction to a single capacity is discussed which leads to the fact that only a single market party can book this capacity (with having only a single nomination). As this second feature still seems to be in discussion within ERGEG (and ERGEG is aware of potential problems) we focus on the first aspect of bundled products and will only make remarks on the second aspect (but a detailed analysis is beyond of the scope of the study). Currently, it is planned to apply the bundled products only to new contracts download