The market-based allocationof new cross-market-area capacities

more capacity: Market-based allocation of new cross-market-area capacities

What is more capacity?

In addition to the network development planning procedure, the transmission system operators (TSOs) GASCADE Gastransport GmbH, Gasunie Deutschland Transport Services GmbH and ONTRAS Gastransport GmbH carried out a market survey from August 21, 2015 to October 16, 2015 to determine the need for new transport capacities for H gas at the boundaries of the GASPOOL market area. The aim of the market survey was to be able to estimate the future demand for new cross-market-area transport capacities as early and as realistically as possible. It is designed to support the proper development of the relevant gas pipeline infrastructure.

The non-binding inquiries submitted for the purposes of the survey were used to initially determine whether there is sufficient demand for the further planning of new development projects (demand analysis). The inquiries were collected and used as part of technical studies for each market area boundary to dimension various offering levels

These new capacities will then be marketed through binding capacity allocation procedures. During auctions, the additional capacity required by market players will be checked again and finalized. Binding bookings will then be made and these bookings will in turn form the basis for the necessary investments in the respective pipeline network.

Why is the more capacity project being carried out? Why now?

The TSOs launched this market survey in response to a number of individual verbal and written inquiries. The aim is to consult the entire market in a transparent and non-discriminatory manner on a uniform basis, thus verify the level of interest and, if there is definite demand, provide new capacities.

In order to get a picture of what additional capacities are required by the market, the TSOs decided to initiate the process described in more detail below for the market-based allocation of new cross-market-area capacities. Based on the current assessment of the TSOs, it represents a suitable procedure.

The process planned by the TSOs is subdivided into two phases: a non-binding phase for determining demand, analyzing it and applying it to possible development projects and a binding phase for allocating and providing the new capacities.

Order of events

The following schedule outlines the planned steps in the process for the market-based allocation of new capacities in detail (click to enlarge).

1. Start of the process

The TSOs launched the process on August 21, 2015. Market players were asked to express their interest in new cross-market-area capacities on a non-binding basis using the inquiry form

By submitting the inquiry form, the inquirer agreed to pay a participation fee if the TSOs involved charge such a fee. Details can be found in the terms and Conditions of Participation.

2. Deadline for submitting non-binding capacity inquiries

The deadline for submitting capacity inquiries expired on October 16, 2015. Inquiries received after that date were not taken into account.

3. Producing a demand analysis

After the market survey was completed, the TSOs analyzed and summarized the capacity inquiries which were received on time. The requested capacity was then presented in aggregated form for each market area boundary. Details of the amount, duration and product quality were also shown.

Will the existing capacities and the development measures currently planned at the market area boundaries be sufficient to cover the requested new capacities? This question was dealt with in the next step. The period for this partial analysis was the first year for which an inquiry is made and the following three gas years. If no long-term demand could be identified on the basis of transport customers' historical booking habits, the resulting capacities that can be marketed in the long term were taken into account when assessing the long-term demand for new capacities. The demand identified from the European Network Development Plan (TYNDP) 2015 was also taken into account if the plan is not included in the German NDP 2016.

After these checks were complete, a decision was made as to whether the inquiries justify carrying out technical studies for new projects. The result can be found in the demand report published in December 2015.

If neither individual non-binding inquiries submitted nor the inquires as a whole are sufficient to justify a project, the process will end with the publication of the demand report.

4. Modeling and planning the necessary developments

On the basis of the cross-market-area capacity requirements determined during the demand analysis, the TSOs produced technical studies for each market area boundary (modeling and planning) from the start of November 2015 to the end of March 2016.

During the studies, the necessary technical development measures, e.g. new pipeline links, feed-in/feed-out stations and new compressor stations, were determined. However, the appropriate upgrading of existing infrastructure on the basis of flow calculations for one or more offering levels per market area boundary was also part of the modeling. 

Once this step was complete, capacity levels or specific network points were defined. These comprise existing capacities (if available) and new capacities. These were then used to derive individual development proposals and provide an initial indication of the necessary investments.

In order to identify possible links to projects which are part of the NDP 2016 early on and compile details of these for the regulatory authority, the technical studies were produced at the same time as modeling the NDP 2016. 

The established offering levels for new cross-market-area capacities were then further defined in a separate process which began in April 2016. The underlying development measures are covered in part in the NDP 2016.

5. Public consultation

Once the necessary preliminary work (steps 3 and 4) was complete, the TSOs carried out a four-week public consultation. During this consultation, market players were asked to give feedback regarding the defined offering levels, the project descriptions and the further process. The relevant content was coordinated in advance with the Federal Network Agency and published in good time before the start of the consultation. The results of the consultation were taken into account when subsequently defining the final offering levels. The final offering levels will be published on the European capacity trading platform PRISMA and more capacity Internet sites at the start of February 2017, in good time before the annual auction in March 2017

6. Coordination with the German Regulation Authority

During the next step, the conditions for holding auctions and, where applicable, economic tests for new capacities were discussed by the TSOs with the German Federal Network Agency on the basis of the preliminary offering levels and the development proposals set out previously.

New technical capacities will be offered at variable tariffs and for a period of up to 25 years after commissioning. Due to new European regulations, the TSOs will examine until the end of 2017 whether fixed tariffs can also be charged instead of variable tariffs.

7. Public announcement of the auctions

The next step will be to inform the market at the start of February 2017 that the auctions are due to be held on PRISMA. The public announcement will provide information regarding the auction date and procedure, the offering levels at relevant boundary transition points, and the expected minimum demand for positive economic tests.

8. Capacity auctions

New capacities will ultimately be allocated by the auctions of various offering levels with the relevant start prices. The auctioning algorithm used should be the same as the standard one already used for annual auctions. 

The results of the auction will be published immediately after the end of the auction. These results will provide the basis for the subsequent economic evaluation. The tests are designed to assess the basic economic viability of the auctioned offering levels. In principle, the cash values of the individual transportation fee revenues are compared to the additional revenue ceilings resulting from the development of capacity. The transportation fee revenues are the result of the new capacities contracted by the market. If the cash values of the individual transportation fee revenues are greater or equal to the respective additional revenue ceilings, the economic test is regarded as positive. 

When carrying out the economic tests, there are plans to take into account the regulatory transportation fee which is derived from the revenue ceilings for the planned investment costs. Any auction premiums will also be taken into account.

Once the auctions for cross-market-area new capacities are complete, the offering level which, given a positive economic test, will provide the greatest additional capacity will be put in place.

A transport customer who successfully takes part in the auctions will receive a capacity booking in the highest positive offering level.

9. Planning and construction activities

The planning and preparatory work for the necessary development projects will be further developed once the binding auctions have taken place depending on the existing economic and regulatory conditions. This includes engineering work, obtaining the necessary permissions under public law, procuring materials and arranging construction services. The construction phase will then begin.

10. Taking into account the auctioned new capacities at the latest in the NDP 2018

At the moment, the TSOs are assuming that the auction results (cf. process step 8) will be included as an identified capacity requirement in the process for the NDP 2018 unless they are already part of the NDP 2016.

11. Confirmation of the development measures at the latest in the NDP 2018 by the Federal Network Agency

Confirmation by the German Federal Network Agency of the NDP 2016 is expected in the second quarter of 2017 and of the NDP 2018 in the fourth quarter of 2018.