The European Commission’s latest update to EU gas capacity allocation mechanism laws is an encouraging sign for market participants tired of law-makers introducing potentially market-changing rules without understanding their impact.
The commission slipped in an unexpected and unwelcome surprise for market participants when it circulated a new draft of a network code for gas markets at the end of February.
The surprise was that alternative capacity products outside of a firm capacity definition would only become available if the related firm product of the same duration was sold out or not available. Firm capacity means that capacity is guaranteed, rather than other forms of capacity which can be restricted depending on several factors.
This would particularly hit Germany and Austria because of the range of alternative forms of capacity used between these areas. The regions have as many as six different options between them and the flexibility for shippers to choose a capacity product depending on how a particular market works would have disappeared.
But, in an about-turn after listening to public feedback, the commission had backed down from this stance in a later draft circulated to member states in April. The new amendment says alternative capacity types can be offered, but these need to be justified by the grid operator on the basis of analysis and approval from the national regulator.
It is a common frustration for market participants when lawmakers propose changes to legislation without fully considering the unintended consequences to the way markets work. This has certainly been the case in other regulatory areas such as the amount of times the network code on harmonised transmission tariffs has been reworked, and the various delays to the second markets in financial instruments directive.
The commission’s clarification on gas capacity products reassured gas shippers it is listening to market concerns and taking them on board. As the network codes on capacity allocation and tariffs continue to be debated throughout the comitology process, the commission needs to continue listening to those who know the market best in order to fully understand the impact any future changes to these rules might have.