Energy Community 10th Gas Forum, 6 October 2015, Ljubljana 1 Nina Grall-Edler Energy Community Secretariat 19th GRI SSE SG– 20 November 2015, Bucharest

2 Recent gas market developments

− 1ary legislation − Deadline for 3rd package implementation: − Compliant gas law reforms finalised: SRB, ALB, UA − Draft laws in approval process: FYROM, MNTG, KOS − 2ndary legislation − Under development: SRB, UA − AL: TAP certification − SRB, UA: unbundling − On the agenda − NC implementation − CESEC related reforms −BAL, CAM, CMP, INT, regulatory independence, certification, DSO unbundling, phasing out of regulated prices, CBCA, public procurement, TRA 3 Recent gas market developments

Transparency in the Energy Community Contracting Parties 19 th GRI SSE SG – , Bucharest 4

5 Background and Scope GRI SSE Work Program Status report on CP TSOs’ compliance with 3 rd package transparency requirements (deadline 12/2015) 2. Closing compliance gaps 3. Publication of data on ENTSO-G platform Methodology − Questionnaire comprising all transparency- related provisions of the Directive 2009/73/EC and Regulation 715/2009 circulated to all NRAs of EnC CPs with gas markets: BiH, FYROM, MD, SRB, UA − Responses received from all countries, except BIH (partially; ref. NRA competences on state level!)

6 Insight FYR of Macedonia  Information currently published acc to transmission network code, market rules and methodology for calculation of transmission tariffs: −capacity allocation mechanisms −congestion management procedures −information on services offered by TSO as well as technical information necessary for access to the network −reasonably and sufficiently detailed information on tariff derivation, methodology and structure −calculation methodology for imbalance charges as well as final tariffs  No TSO transparency platform  Law and secondary legislation implementing 3 rd Package are under preparation and should provide ground for increased TSO transparency

7 Insight Moldova  Information currently published Procedures and tariffs for connection Transmission and distribution tariffs and relevant methodologies  No TSO transparency platform  Law and secondary legislation implementing 3rd Package not yet prepared

8 Insight Serbia  Majority of TSO related transparency requirements of Directive 73/2009 and Regulation 715/2009 fulfilled – information published in the relevant network code  NRA publishes all information on transmission tariffs and methodologies for their calculation  Missing information on capacities offered, ex- ante and ex- post supply and demand information, information on balancing revenues – Network Code requires such publications, however TSO unbundling process is not finalized i.e. activities for which transparency is required are not yet performed  Transparency requirements of Annex I of Regulation 715/2009 partly fulfilled − actual publications should be provided after the unbundling is finalized and TSO transparency platform is established

9 Insight Ukraine  Most of TSO related transparency requirements of Directive 73/2009 and Regulation 715/2009 fulfilled −information published on the web page of the TSO or NRA (related to tariff methodology)  Some information published on ENTSO-G Platform  Network code approved in October CAM, CMP and balancing related information shall be published soon.  Transparency requirements of Annex I of Regulation 715/2009 partially fulfilled- − information published on TSO web page or ENTSO-G Transparency Platform

10 Outlook −Detailed insight report on all 3 rd package related gas transparency requirements to be finalised and published early 2016 − PC on findings to identify market views for improvement? − Proceed with other elements of the GRI SSE WP Closing compliance gaps 2. Publication of data on ENTSO-G platform

Gas Market Integration GRI SSE 11 19th GRI SSE SG – , Bucharest

3rd package implementation – what‘s next? Legislation vs reality Efficiency of NC implementation vs limits of geographic market integration Looking beyond the EnC borders! 12 Scene setting

13 Scope of study What is a potential geographical scope (options) for cross-border market integration? What are the benefits associated with these market integration options (MIO)? Which market integration model should be applied? What are the major steps in implementing a MIO? Energy Community Contracting PartiesGRI SSE member countriesnon-scope countries

Criteria for geographical scoping 14 Market integration option (MIO) feasibility Sources Interconnection Gas hub Timescale Consumption Does the MIO provide more direct access to additional sources? Combinations without (planned) physical interconnection not analyzed Does the MIO include one or more countries that already have at least a somewhat organized gas market? If the required physical and/or market infrastructure is not yet in place, can this be realistically expected? MIOs that constitute a very small market are not regarded

4 market integration options selected 15 Includes CEGH market considerable direct access to new sources for UA & MD Based on existing infrastructure Includes CEGH market extensive direct access to new sources for SRB & BiH Mainly based on existing infrastructure Integration of MK and KS possible Relatively low direct access to new sources for Ukraine Fully depends on planned infrastructure CESEC! Includes PSV market extensive direct access to different sources for Ionian- Adriatic region Fully depends on planned infrastructure MIO 1 MIO 2 MIO 3 MIO 4 greenorangegrey Kosovo: extension if infrastructure would be createdOptional extensions for MIO 2Main MIO scope

Logic for the determination of “direct market access” 16 …the DMA is calculated for an assessment target… …in relation to a new direct source to this assessment target. LNG GPL NCG PSV For a specific market integration option*… UA/MD

Ukraine West Integration 17 UA/ MD GPL NCG PSV LNG PL AT CZ SK +7,3% of NID +44,3% of NID +14,2% of NID +31,1% of NID Existing infrastructure Planned infrastructure TargetSourceOther MIO country

Serbia North Integration 18 RS BA GPL NCG PSV LNG PL AT CZ SK HU SI HR BA: +100% of NID from all sources BG MK LNG Existing infrastructure Planned infrastructure TargetSourceOther MIO countryPotential extension Bottleneck MK: +100% of NID from all sources Capacity fully used in 2014 RS: +41,2% of NID from LNG/PL and GPL KS ? ? RS: +100% of NID from NCG, PSV, LNG/HR Extension option

Ionian/Adriatic Integration 19 BA For all sources: BA: +100% of NID* ME: +100% of NID* AL: +100% of NID* CEGH IT ME AL XK HR GR LNG DZ LY SC LNG ? Existing infrastructure Planned infrastructure TargetSourceOther MIO countryPotential extension

Ukraine South Integration 20 UA/ MD LNG RO CESEC! BG MK GR AL LNG PSV SC from all sources: +1,7% of NID from all sources: +100% of NID Existing infrastructure Planned infrastructure TargetSourceOther MIO country Bottleneck for UA/MD

Benefit categories Number of supply sources Secondary benefits without quantification Improved retail market efficiency Herfindahl-Hirschmann Index Residual Supply Index Improved wholesale market efficiency Market health metrics Welfare perspective Market functioning perspective

Benefits: Market health perspective 22 * Note for Kosovo: Since no interconnection capacity is built or planned, Kosovo is not included in MIO calculations. P RE -M ERGER P OST -M ERGER N O. S UPPLY S OURCES HHIRSIMIO N O. S UPPLY S OURCES HHIRSI A LBANIA 1n.a. MIO % MIO % B OSNIA - H ERZEGOVINA % MIO % MIO % K OSOVO * n.a. MIO 2n.a. FYR OF M AC % MIO % M OLDOVA % MIO % MIO % M ONTENEGRO n.a. MIO % S ERBIA % MIO % U KRAINE % MIO % MIO %

Start with satelite approach CP > MS MS NRA / TSO support provided GRI SSE as discussion platform > WP? > project structure to be developed For the CPs: little effort in addition to ongoing market reforms under: 3rd package implementation CESEC related market reforms 23 What‘s next?

24 Thank you for your attention!

25 Satellite

AGTM integration tools: Summary for recommendation 26 M ARKET M ERGER T RADING R EGION S ATELLITE M ARKET S HORT DESCRIPTION OF THE INTEGRATION MODEL Two or more neighbouring gas markets fully merge their balancing zones and consequently their VTPs. Two or more neighbouring gas markets establish a cross- border balancing zone with a single VTP, covering all transmission systems but maintaining national end-user balancing systems. A gas market (satellite) does not establish or maintain its own VTP but “co-uses” the VTP from a neighbouring gas market (feeder) creating an integrated wholesale market. H ARMONIZATION P REREQUISITES AND I MPLEMENTATION B ARRIERS Most harmonization prerequisites and implementation barriers Fewer harmonization prerequisites and implementation barriers than a market merger Easiest way of implementing a market integration B ENEFITS Maximal benefitsPossible deductions of welfare benefits P RECONDITIONS Preconditions met for all Contracting Parties Preconditions only met for MK and MD

27 CESEC – ECS monitoring roadmap MoU criteriaNational relevance Ensuring transparent and non- discriminatory third- party access* Establish capacity allocation mechanisms and congestion management rules allowing TPA in forward and reverse flow* Establish market- based balancing mechanisms Develop transparent and non- discriminatory tarification rules that do not distort trade across borders (avoid pan-caking)* Ensuring free flow of gas and provision of competitive framework * Remove legal or contractual barriers to competition* Ensure barrier-free market entry* Opimise actual capacity use in both directions, including backhaul* Infrastructure related measures Adopt interconnection agreements* Provide a cross- border cost allocation mechanisms in line with Regulation (EU) 347/2013* Ensure harmonised framework of operation of interconnected EU MS- EnC CP systems Cross-cutting measures Ensure independence of national energy regulatory authorities based on pre-defined indicators Unbundle and certify transmission system operator in line with the Third Energy Package Apply for observer status in ACER based on a positive opinion of the European Commission Increase effectiveness of national administrative authorities, including for competition and State aid * MoU element Measures required for market integration Discuss possibilities to integrate gas markets with neighbouring EU and EnC gas markets

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