Shippers seek interruptible capacity discount in new code

Shippers are pushing for the new EU network code on harmonised tariff structures for gas to require grid operators to provide a discount to companies for interruptible capacity products before an interruption strikes, industry sources polled by ICIS recently said.

The European Network of transmission system operator (ENTSOG) is currently in charge of drafting this new network code, which is one of the 12 EU gas network codes which have to be created and implemented as part as the EU energy liberation process and the third energy package.

One of the pending thorny discussions among stakeholders concerning the network code is how national gas grid operators calculate interruptible capacity auction reserve prices at interconnection points, and notably the difference between the firm and interruptible capacity price offered.

Currently, a number of European grid operators provide the same reserve price at auction for both firm and interruptible capacity and refund shippers for the cost of interruptible capacity in the event of an interruption. This action to reimburse after the event is called “ex-post discount” for interruptible capacity, as opposed to the “ex-ante discount”, favoured by shippers.

But shippers think the ex-post discount is not fair. Paying back interruptible capacity only after the event is an incentive for grid operators to offer this instead of firm capacity, as it lessens their risk for the same reward, sources said.

Shippers are also disadvantaged as they pay a firm price for booking what is interruptible capacity while they are still being exposed to the risk of having to cover a short position in the market in case the capacity is actually interrupted.

“An interruptible price should never be the same as a firm price, because an interruptible product can ultimately be interrupted whereas a firm product cannot,” representatives from the European Federation of Energy Traders (EFET) recently said in a public document.

In its last draft proposal dated May, ENTSOG has proposed a combination of ex-ante and an ex-post discounts on reserve prices.

But this does not go far enough for critics. EFET reiterated its strong opposition to any ex-post discount, saying that “it would be deeply concerning if this unhelpful and distorting practice were to be legitimised” through the new network code.

The decision on whether to opt for an exclusive ex-ante discount in the network code to harmonise gas transmission tariffs has to be made by ENTSOG by the end of the year, when the network code will be finalised.

ENTSOG has organised various industry workshops during the year to discuss about several issues opposing market participants ( see ESGM 5 September 2014 ). The last workshop will take place on 24 September. Lucie Roux