The Ministry of Economic Affairs and Employment set up a working group in 2014 in order to prepare a proposal for reformation of the Natural Gas Market Act (508/2000, as amended) and for opening the Finnish natural gas market. A government proposal was presented on 11 May 2017 (the "Proposal") and the Proposal is scheduled to be implemented as the New Natural Gas Market Act on 1 January 2018.
Current situation and proposed key amendments
Current status of the Finnish natural gas markets
In Finland, currently there is only one importer and wholesaler of gas, Gasum Ltd ("Gasum"), which, in turn, transfers the natural gas from the Russian border into Finland. Gasum is 100% owned by the Finnish State. The Finnish natural gas pipeline network consists of one transmission pipeline from Russia to the eastern border of Finland (the receiving station of Räikkölä in Imatra) and one transmission pipeline bringing the gas further to southern Finland. Gasum purchases its pipeline gas from Russia from Gazprom OAO.
Current market situation and derogation from the Natural Gas Market Directive
Finland is currently applying Article 49 of the Natural Gas Market Directive (2009/73/EC) (the "Directive"), which entitles Finland derogate from certain articles of the Directive. The derogation entitles Member States not directly connected to the interconnected system of any other Member State and having only one main external supplier to derogate from Articles 4 (Authorization procedure), 9 (Unbundling of Transmission systems and transmission system operators) and , 37 (Market opening and reciprocity) and/or 38 (Direct lines) of the Directive.
In the current market situation, the Finnish natural gas transmission network has not been fully unbundled from the sale of natural gas. The prices and conditions for the sale of natural gas are regulated and due to the existing market situation, there is a lack of competition-based market structures, such as marketplaces.
The main objective of the Proposal is to open the natural gas wholesale and retail markets for competition in accordance with the Finnish National Energy and Climate Strategy as Finland renounces application of the derogation.
Main reason for the need to develop the legal framework for the Finnish natural gas market is the weakened competitiveness status of natural gas in the Finnish energy markets. Especially in the Finnish energy production, natural gas competes with other fuels on currently inequitable terms. The Proposal includes propositions for less restrictive provisions for wholesale pricing mechanisms, which, in turn, is likely to improve the competitiveness of natural gas.
Requirements for a competition-based market structure
Joining the internal gas markets of the European Union requires that all functions required by the national market model have been taken into use, in addition to which establishing a network code on capacity allocation mechanisms in gas transmission systems ("CAM") and congestion management procedures in the event of contractual congestion ("CMP") need to be implemented at the interconnection points. Prerequisites for joining the internal markets include the unbundling of the TSO and the introduction of an entry-exit system alongside the creation of entry-exit tariff system. According to the Proposal, these prerequisites are scheduled to be fulfilled by 2020, at which point the Finnish National market can be fully integrated into the European internal markets.
Proposal for a new Natural Gas Market Act
The key amendments introduced by the Proposal include the following:
- Renouncing of the derogations (Article 49) of the Natural Gas Market Directive conjunction with completion of the building of the Balticconnector-pipeline.
- Unbundling of the transmission network from the sale of natural gas (TSO) by 1 January 2020.
- Terminating the wholesale pricing mechanism.
Opening of the markets and renouncing the application of the exception for isolated markets in accordance with Article 49 of the Directive
According to the Proposal, Finland will renounce the application of the exception provided for in Article 49 of the in the Natural Gas Market Directive and open its market for competition. The exceptions of the Directive will be renounced fully on 1 January 2020, when the construction of the Balticconnector pipeline is completed. The Balticconnector pipeline connects Finland to the Baltic gas network and further to the European network and gas markets.
The Proposal presupposes that competition neutral system functions are created for a transition period, which can last several years, preparing the market for opening.
Full ownership unbundling of the transmission network from the sale of natural gas
The objective of ownership unbundling of the transmission network from the sale of natural gas is creating independence for the transmission, as required by Internal Market rules. The transmission and sale of natural gas will be fully unbundled when the exception for isolated markets is no longer applied.
The unbundling model proposed in the Proposal is full ownership unbundling.
The unbundling will apply to TSO Gasum (not DSO:s), which owns and controls the natural gas transmission system in Finland. Full unbundling must be implemented at the latest when a trigger requiring unbundling is materialized, and according to the Proposal, unbundling will occur from the beginning of 2020.
The Directive enables derogation from applying judicial and functional unbundling if the transmission network has less than 100 000 customers. All Finnish gas distribution system operators fall below the limit set by the Directive. Thus, there are no requirements for judicial or functional unbundling of natural gas transmission and distribution system operators, whereas the derogation can still be applied.
Reduction of the use of wholesale pricing mechanisms
According to Regulation No 715/2009 on conditions for access to the natural gas transmission networks, the transfer tariff must be based on an entry-exit system and the wholesale pricing mechanisms must be terminated.
According to the Proposal, an entry-exit tariff system will be taken into use in relation to opening of the market. Also the transmission network will be part of the entry-exit tariff system, due to which also the gas imported from Russia will be subject to the tariff. Use of wholesale pricing mechanisms will be abandoned save for small end users and natural gas directly supplied to be used for residential purposes.
Third party access ("TPA") and transfer obligation
In the beginning of 2020, the TSO's transfer obligation will be expanded to cover all customers that meet the conditions defined in the Directive. Customers eligible for access are customers that are part of a remote metering system, to which any customer may be connected to.
The only way to accomplish full TPA is to give network users the freedom to book entry and exit capacity independently, which will be guaranteed based on a public tariff system. Transfer obligation will also be expanded to LNG terminals (also covering off-grid terminals).
Interconnectors, LNG-terminals and bio gas facilities constitute entry points of the transmissions system and usage points form exit points, where the transmissions fees based on the entry-exit system are collected.
When preparing renunciation of the exception for isolated markets, Finland shall ensure that the access to transmission and distribution networks is implemented based on a tariff system, which can and will be applied to customers that meet the conditions defined in the Directive. Access based on the tariff system will be implemented on an impartial and non-discriminatory manner.
Regulation specifically concerning LNG terminals
According to the Proposal, also off-grid LNG-terminals shall be within covered by the regulations of the New Natural Gas Market Act meaning e.g., that the TPA, obligation to transfer and regulated tariffs will also cover off-grid LNG terminals.
Certain regulations included in the proposed Natural Gas Market Act do not apply to off-grid LNG terminals.