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Dutch regulator to decide on natural gas flexibility service by December

17 Oct 2012 17:32:47 | esgm

The Dutch Competition Authority NMa is to decide by December on the future value of a flexibility service that allows natural gas shippers to deal with market imbalances.

The Nomflex service, which is one of a number of balancing tools available to shippers using the Dutch transmission system operator (TSO) Gas Transport Services (GTS), provides access to capacity for storing excess gas and supplying gas in a market shortage.

The NMa has become increasingly critical of the service it introduced more than seven years ago because it believes the Dutch market is now well equipped to balance on its own.

"The market is starting to solve this problem itself, and that is why we are critical of this service because it's an artificial, imposed service," Robert Spencer, the NMa's Head of Unit Gas Markets & Regulation, told ICIS.

Diminishing interest

The service, which was known as Combiflex until 2010, offered shippers an alternative flexibility source to incumbent Gasterra at a time when storage capacity was limited and TTF liquidity was poor, according to Spencer.

At the request of the NMa, the Dutch Ministry of Economic Affairs, Agriculture and Innovation included the provision of a flexibility market into the Dutch Gas Act, which stated that GTS would be obliged to provide such a service, the NMa said.

But with the development of other flexibility sources, Nomflex's use has diminished, Spencer said.

The Dutch market now operates a new market model which encourages gas volumes to be delivered at the TTF. Greater provision and access to storage capacity in the Netherlands and at German sites connected to the Dutch grid has helped to boost capacity, flexibility and liquidity. And so has the introduction of a balancing mechanism that looks at the overall system balance rather than penalising every shipper imbalance, and allows shippers to balance their portfolio with access to hourly flow information.

As a result, Gasterra has since expressed concerns that the regulated service could risk diverting liquidity away from the TTF, (see ESGM 6 June 2012).

Waning interest

GTS said that it has seen a declining level of booking for the service in the past years. Sales went down from approximately 120,000 units in 2010 to approximately 70,000 units in 2011. So far in 2012, sales are down to 60,000 and GTS expects 2013 sales to match those of this year. One unit equals 1 cubic metre/hour.

Phasing out the flexibility service would also allow the NMa to focus its attention on other strategies such as further market integration with the implementation of the European network codes and capacity allocation mechanism, Spencer said.

Other strategies

The NMa is also working on integrating the Bid Price Ladder (BPL) into the TTF by 2014 to boost the potential for more liquidity, Spencer said. Currently, the BPL operates outside the TTF and represents another service where its use as a balancing tool on the intra-day market could generate more liquidity if it were to become a function of the Within-Day market.

ICIS data shows that Within-day traded volumes are increasing. During 2011, volumes reported totalled 3.45TWh. In the 10 months to 16 October 2012, volumes are already at 5.68TWh.

Under the request of the NMa, GTS carried out its own evaluation of the BPL earlier in the year, which recorded a mixed reaction from the market but did see some support for the BPL's merger into the Within-day market, (see ESGM 11 May 2012).

The NMa is due to assess GTS' evaluation of the BPL but added that it would be separate to the ongoing evaluation of Nomflex. And as yet, no date has been set for the publication of BPL assessment.

Background

The NMa's current evaluation, which started earlier in 2012, is part of a wider assessment of the Dutch Gas and Electricity Act, which is conducted every four years, Spencer said.

The evaluation into the flexibility service aims to investigate how Nomflex is being used and by whom. Spencer said based on that information, it was probable that the NMa would be "very critical about maintaining it".

Once the NMa has concluded its evaluation, the outcomes will be put before the Ministry as it has overall authority on amending the Gas Act.

"I'm hoping that they will take our advice seriously and they will change the Gas Act accordingly; that is of course presuming that the outcome of our evaluation is what I think it will be." KA

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