On 3 March 2011, the Agency for the Co-operation of Energy Regulators (ACER) was inaugurated as the majority of the provisions of the European Third Energy Package took effect. To mark the occasion ACER launched consultations on two draft framework guidelines, dealing with capacity allocation in the European gas transmission network and electricity grid interconnection.

For participants in the European gas and electricity markets ACER's consultations present the opportunity to comment on the guidelines, which will directly affect the European network codes that they will need to comply with.

Background

On 13 July 2009, the European Union adopted the Third Energy Package which, amongst other legal and policy measures (for further details see our e-bulletin), provided for the establishment of ACER and the development of European network codes to improve regulatory harmonisation and facilitate the effective functioning of the internal electricity and gas markets.

The Third Energy Package requires the European Network of Transmission System Operators (ENTSOs) to develop the European network codes, in accordance with framework guidelines set by ACER.

The draft Framework Guidelines on Electricity Grid Connections

The draft guidelines apply to all types of grid users (generators, consumers and Distribution System Operators (DSOs)). They deal with three main topics:

  • minimum standards and requirements for connections;
  • promoting exchange of information between parties; and
  • improved co-ordination and additional provisions to be addressed within the scope of system operation.

Minimum standards and requirements for connection

The draft guidelines specify that the network code should:

  • define appropriate minimum standards and requirements for each type of grid user; and
  • take into account the voltage level of the grid connection, including derogations applicable in specific cases.

For users already connected to the grid, the minimum standards and requirements will only apply if this would benefit grid users generally, on the basis of a quantitative analysis. The network code will also specify criteria defining "significant users" based on their impact on the system.

The network code will also define other standards and requirements, including system parameters relating to frequency, voltage and power control.

Promoting exchange of information between parties

The draft guidelines provide that the network code will set out:

  • procedures and requirements to co-ordinate and ensure information sharing between Transmission System Operators (TSOs), DSOs and significant generation and consumption units; and
  • a harmonised standard detailing which information shall be provided and shared.

The information exchange provisions in the network code will include detailed specifications for an efficient, co-ordinated system providing access to real-time information.

With regard to information sharing between TSOs and DSOs, the draft guidelines stipulate that the network code should define the technical requirements for interface points, including voltage parameters and reactive power flow.

Additional provisions to be addressed within the scope of system operation

Due to the close interrelationship between grid connection and system operation, the draft guidelines provide for the European Network of Transmission System Operators for Electricity (ENTSO-E) to ensure coherence of the grid connection network code with provisions in the Framework Guidelines on System Operation (which have yet to be developed and published).

The draft Framework Guidelines on Capacity Allocation Mechanisms for the European Gas Transmission Network

The draft guidelines apply to cross-border interconnection points (physical and virtual) between two or more Member States, as well as interconnections between adjacent entry-exist systems within a Member State for which users are required to book capacity.

The draft guidelines provide that the network code should define standardised content to be included in transmission capacity contracts and general terms and conditions for capacity allocation and capacity services.

As regards existing arrangements, TSOs will have to amend existing contracts and/or general terms and conditions relating to the allocation of capacity to comply with the network code within six months of it entering into force.

The draft guidelines focus on:

  • capacity services; and
  • capacity allocation.

Capacity services

The draft guidelines provide that the network code should set out how TSOs determine the firm and interruptible capacity jointly offered at each interconnection point. The offer and use of separate capacity for transit purposes will be forbidden to ensure that capacity used for transit and capacity used for domestic purposes are treated equally.

Firm and interruptible capacity services

The network code will define a small set of standardised firm capacity services of different durations and starting dates. The standardisation will be based on a daily capacity period running from 0500hrs to 0500hrs UTC/GMT, or any other time period harmonised across the EU as agreed by the European Network of TSOs for Gas (ENTSO-G).

In the case of interruptible capacity services, the network code will need to dictate how TSOs align interruptible capacity services at every interconnection point in both flow directions. The network code will define reasons for interrupting services, classes of interruptibility and the order in which services can be interrupted. Within a Member State, adjacent TSOs will also have to implement standardised procedures, including defined interruption lead times.

Breakdown and offer of capacity services

The network code will set out how the breakdown of available firm capacity between the different long and short term capacity services will be determined. At least 10% of available firm capacity at interconnection points is to be set aside for short term services. It is intended that TSOs offer all their available firm capacity, including any unallocated capacity, capacity allocated and subsequently surrendered and any unused capacity.

Cross-border services

The draft guidelines aim to harmonise cross-border services. As such, the new network code will require neighbouring TSOs to jointly offer bundled firm capacity services. The corresponding exit and entry capacity services are to be integrated to provide for a single allocation procedure and single nomination for the transport of gas between connected systems.

This requirement will have an impact on existing capacity contracts as existing capacity will have to be bundled no later than five years after the network code comes into force.

The network code will also provide that capacity at two or more points connecting two adjacent entry-exit systems should be integrated into one virtual interconnection point, which should be established no later than five years after the network code enters into force.

Capacity allocation

The draft guidelines detail how TSOs are to offer capacity for all firm and interruptible services on a regular basis, so that allocation procedures foster competition and market integration.

The network code will define a number of regular points in time at which firm capacity services will be allocated. Each allocation will include a time window during which capacity can be requested.

All firm and interruptible capacity for each time period will be offered via auction. The network code will set out a harmonised online auction design for firm-day capacity to be applied at every interconnection point within the EU to avoid any potential for abuse of a dominant market position. The draft guidelines also set out details concerning reserve prices, auction revenues and the allocation of interruptible capacity services and within-day capacity.

Within a Member State adjacent TSOs will be required to establish joint, anonymous, web-based platforms for primary capacity allocation and secondary capacity trading, unless capacity is allocated by means of implicit auctions.

Impact and outlook

Both sets of draft guidelines, and the future network codes, are likely to have a significant impact on national network codes and existing arrangements for users of the gas and electricity networks.

As the European network codes will touch on issues that may currently be dealt with in national network codes, such as technical system parameters, changes to national network codes are likely to be required. With regard to gas transmission, the European network code will not only define and change cross border allocation mechanisms, but is also likely to change how gas days are de-fined in national network codes, thereby affecting existing trading arrangements.

Throughout 2011 and 2012, ACER is set to publish further framework guidelines on issues such as system balancing, congestion management, system operation, tariffs, incentives to increase cross border trade and investment incentives for TSOs. These will result in further European network codes which will affect the current national network codes in each European jurisdiction and may require industry players to adjust their business practices.

Get involved

The Third Energy Package requires ACER to submit its framework guidelines on electricity grid connections and gas capacity allocation to the European Commission by 4 July 2011.

Interested parties are invited to submit their views and questions using ACER's online public consultation questionnaires by 2 May 2011.

The electricity grid connection questionnaire can be accessed here.

The gas allocation questionnaire can be accessed here.