Introduction

To comply with the applicable EU regulations, E-Control recently published draft amendments to the Gas System Charges Ordinance 2018 and the Gas Market Model Ordinance. In response to international criticism, E-Control also proposed a redesign of the Austrian gas balancing system. In order to implement these amendments in the current Austrian gas market, E-Control, in cooperation with the transmission system operators Gas Connect Austria GmbH and Trans Austria Gasleitung GmbH, drafted a proposal to establish a virtual interconnection point at Baumgarten.

The public consultation of the intended amendments closed on March 23 2018. The deadline to redesign the Austrian gas balancing system was April 13 2018.

Proposed amendment to Gas System Charges Ordinance 2018

Due to the approval of the GCA 2015/01a Bi-directional Austria Czech Interconnector (BACI) Project, which is part of the 2017 Coordinated Network Plan, the proposed second amendment to the Gas System Charges Ordinance 2018 seeks to regulate the charges of the relevant point Reintal. The BACI Project has the potential to open the Eastern Austrian market up to northern European gas importers through the Czech market. Austrian gas clients also could benefit from forecasted lower prices. Even if there is a lack of long-term bookings for the incremental capacity at the relevant point Reintal, the occupancy of the BACI Project and downstream points will be secured, as expected by E-Control. According to the EU Capacity Allocation Mechanism (CAM) Network Code (2017/459), the annual auction for incremental capacity will be held in 2019 at the latest.

Moreover, the proposed amendment to the Gas System Charges Ordinance 2018 regulates a mandatory minimum premium for created incremental capacities to assure the cost-effectiveness of upcoming incremental capacity projects. Therefore, the regular rates are elevated by the mandatory minimum premium as a basis for the aforementioned annual auction. The mandatory minimum premium must be recalculated every four years or whenever there has been an incorrect calculation regarding the incremental capacity's demand before the annual auction.

Proposed amendment to Gas Market Model Ordinance

Virtual interconnection points According to Article 19(9) of the EU CAM Network Code, EU member states must establish operational virtual interconnection points by November 1 2018 at the latest. The proposed Section 8 of the Gas Market Model Ordinance 2018 stipulates specific rules for virtual interconnection points. The system operator must offer capacity at a cross-border interconnection point (eg, interrupting and incremental capacity) only at a virtual interconnection point, in case it must be established according to the EU CAM Network Code. The 'use it or lose it' policy for firm day-ahead (Section 11(9) of the 2018 ordinance) and long-term capacity (Section 12(2) of the 2018 ordinance) are also included. Section 8 of the 2018 ordinance does not apply to capacity surrenders at cross-border interconnection points. Further, capacity contracts signed before the amendment to the 2018 ordinance enters into force can be continued under the old system. System users that wish to transfer their contracts to a virtual interconnection point can do so throughout the contract term. For any concept ready for implementation, the system operator must call in market participants and notify the regulatory authority. These regulations will enter into force on the beginning of the October 2 2018 gas day.

Other changes Other changes include the following:

  • The regulatory authority must be notified by distribution managers in advance of any implicit capacity allocations under Article 2(4) of EU Regulation 2017/459, pursuant to Section 15(3) of the 2018 ordinance.
  • Pursuant to Section 18(2) of the 2018 ordinance, distribution-level entry and exit points at market area borders are subject to the balancing rules for distribution-level cross-border interconnection points, unless different rules apply.
  • For large consumers, the contracted capacity is raised from 10,000 kilowatt hours per hour (kWh/h) to 50,000 kWh/h measured per hour per entry, exit or metering point, pursuant to Section 18(6) of the 2018 ordinance.
  • Balance responsible parties for diversified balance groups must now notify the regulatory authority in advance of the start of their activities.

According to the draft law, the above changes will enter into force on the beginning of the May 1 2018 gas day.

Proposal to redesign gas balancing system

Due to constant criticism from European organisations such as the European Federation of Energy Traders and the Agency for the Cooperation of Energy Regulators that the Austrian gas balancing system is not in line with the EU Gas Balancing Network Code (312/2014), E-Control has set out a proposal to redesign the system and is currently consulting with market participants.

The proposal has several objectives, the most important of which are discussed below and include:

  • centralising and merging gas market roles;
  • specifying procedures for more efficient network use; and
  • increasing transparency.

Centralisation and merging of gas market roles In order to facilitate the operating of balance responsible parties (BRPs), the market area manager and the distribution area manager of Vorarlberg, Tyrol and Eastern Austria will be merged into the market and distribution area manager for the Austrian market. The market and distribution area manager will undertake all necessary balancing actions and be responsible for balance group registration. Additionally, the market and distribution area manager will work on the distribution-level interconnection points, as well as storage and production points.

A clearing entity will also be established. Currently, the clearing and settlement agent is split among the three distribution areas. The redesign does not affect the need to contract with the operator of the virtual trading point (VTP) in general and with the NetConnect Germany (NCG) in respect of the Vorarlberg and Tyrol market. Participation in the gas exchange will now be voluntary for the eastern market area.

As a result of the centralisation, the clearing balances will no longer rely on consumers' schedules and the distinction between transmission and distribution-level balancing and clearing will disappear.

Specification of procedure to use network more efficiently E-Control has proposed that balancing on behalf and for the account of BRPs for the daily positions of the balance groups will be done by the market and distribution area manager. Moreover, BRPs no longer need to trade at the gas exchange.

With the support of the market and distribution area manager as a hub of data, BRPs must balance their portfolios as best they can.

According to the proposal, a helper/causer system will be established to offer an incentive for balanced portfolios. If the day-end netting of a balance group has the same direction as the procured balancing actions of the market and distribution area manager, it is called a 'causer' and the marginal sell and buy price title product applies pursuant to Article 22 of the EU Gas Balancing Network Code. If the day-end netting is contrary, the weighted average price of gas on the relevant market applies (helpers).

E-Control's regulations will be complemented by further adjustments, such as:

  • within day obligations;
  • a daily neutrality charge for balancing;
  • a more efficient financial settlement for the clearing process; and
  • a centralised second clearing for all distribution systems.

Increased transparency There is an ongoing duty for transmission and distribution operators to have a special balance group and a BRP. The main objective is to differentiate between:

  • the allocation quantities during the clearing;
  • actually metered gas flows at market area borders and connection points; and
  • the line pack at the transmission and distribution level.

Further, the recovery of cost according to the neutrality charge for balancing and through grid charges will be defined more clearly, as will the application of default or actual calorific value.

Tyrol and Vorarlberg will continue to calculate the need for gas and transfer this information to the market and distribution area manager at the German VTP. The single clearing entity will clear the market areas under the same principles as in the Eastern Austrian market.

Proposal to establish Baumgarten virtual interconnection point

In line with the EU CAM Network Code, Austrian transmission system operators Gas Connect Austria GmbH and Trans Austria Gasleitung GmbH have outlined their plan for establishing a virtual interconnection point at Baumgarten to link the Eastern Austria market with the entry-exit system in Slovakia. The main objective is to market all capacities offered by the transmission system operators in joint auctions through the Baumgarten virtual interconnection point. Existing contracts on the physical interconnection points will remain in force. Moreover, system users can opt to transfer their contracts into the new system. Therefore, the terms will be regulated by the Gas Market Model Ordinance. The proposed conditions are that the same capacity product in the same amount and duration of the already existing contract will be undertaken. Only the place of delivery can be changed.

Comment

The proposed amendments – in particular, the establishment of a virtual interconnection point at Baumgarten and the redesigning of the gas balancing system – will ensure that Austrian gas regulations comply with the applicable EU legislation.

For further information on this topic please contact Bernd Rajal or Sebastian Strauss at Schoenherr by telephone (+43 1 53 43 70) or email (b.rajal@schoenherr.eu or s.strauss@schoenherr.eu). The Schoenherr website can be accessed at www.schoenherr.eu.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.