Results of Stakeholder Survey

customers, which typically represent a major share of overall gas consumption.⁵⁰ These customers are typically characterised both by a different load patterns and a different distribution and scale of forecast errors. In some countries, these customers furthermore benefit from special provision, such as a complete exemption from any imbalance risk in Germany. It is therefore very well possible that the results for this customer group might partially have been different from those presented and dis-cussed in this section.

• Last but not least, we note that our analysis has been limited to only those costs and charges, which are explicitly used in the context of imbalance settlement. In contrast, we have not been able to estimate the ‘hidden’ costs of flexibility of for instance line pack or other sources of flexibility that are owned or contracted by the TSOs under separate contracts and where the corresponding costs are socialised through trans-mission charges, such as for instance in Austria, Denmark, France, Great Britain or the Czech Republic. Noting that these examples include in particular those countries with the lowest average costs shown above, it is therefore possible that a more com-prehensive estimation of the associated costs might have resulted in different results with regards to the costs of the different countries relative to each other.

These limitations should be taken into consideration when interpreting the results presented in this section. We therefore emphasise that the focus of any analysis should not be on a di-rect comparison between different countries but rather on the relative impact of different ap-proaches and systems. Moreover, we note that these aspects are unlikely to have a sub-stantial impact on the differences arising in case of a multi-client portfolio being supplied in several countries instead of a single national portfolio.

3.3 Results of Stakeholder Survey

One part of the study included a user survey of market participants and stakeholders in-volved, in order to obtain a comprehensive picture from the market side. For this purpose a questionnaire was developed. Over 35 parties, among them TSOs, NRAs and other stake-holders (exchanges, associations, producers, traders, incumbents and suppliers), from

50 Please note that a corresponding analysis would additionally have required a detailed simulation of the appli-cable arrangements for the delivery of customers on the basis of standardised load profiles in several countries.

across Europe were invited to give their views on a limited number of questions related to tariffs, tariff regulation and balancing.

Of the total of 35 parties contacted, we received responses from:

• 8 market participants;

• 5 TSOs; and

• 6 regulatory agencies.

During the survey it became clear that all market parties (network users, TSOs, regulators) share similar views on some topics, whereas on other issues there is an obvious discrep-ancy between the different groups. In addition, respondents were asked to prioritise the is-sues to be tackled. As mentioned below, the answers suggest that access to cross-border capacities as well as investments in new capacity are clearly seen as the main obstacles to cross-border trade and the establishment of a European market for natural gas. The diversity of balancing regimes is widely seen as another important issue to tackle, whilst the harmoni-sation of tariffs and tariff regulation has often been described as desirable but less urgent.

The main results of this user survey, which are explained in more detail below, can be sum-marised as follows:

• Capacity management and capacity allocation are widely regarded as the most pressing problems;

• Investment in new capacity is considered to be insufficient and existing tariff regimes are not believed to provide correct investment signals;

• Auctions are regarded as the preferred solution for providing location signals for net-work users and identifying investment needs in the international netnet-work;

• Although differences in balancing regimes are perceived as less critical than access to cross-border capacities, the lack of harmonisation is clearly seen as a barrier to cross-border trade; and

• Open season procedures as applied today are seen as critical due to the lack of in-ternational cooperation and asymmetric commitments of network users and the TSOs.

3.3.1 Tariffs

Insufficient transparency

In general, differences in tariffs structure, tariff level and product structure are not regarded as the major problem in the gas capacity market. It is even argued that these differences and imperfections in the system enable arbitrage and trade. There is general consensus for har-monisation (or integration) of systems, but it should be running along physical gas flows and along the borders of well interconnected and deeply interrelated systems, e.g. if flexibility in one country is solely provided by a neighbouring country. One of the main issues for all re-spondents is that tariffs and product structures often lack sufficient transparency and that this poses a serious obstacle for new market entry and subsequently for competition. As long as the rules are transparent and non-discriminatory, the market is able to handle differ-ences in tariffs and products.

Limited importance of tariff levels

In this context it was also stated (mainly by TSOs and network users) that the absolute height of tariffs is not regarded as a problem, as the value of the gas commodity can hardly be compared to the relatively low costs of transport. It was stressed several times that in-stead the main problem is the unavailability of capacity.

Harmonisation needed

All respondents want harmonisation of products, e.g. bundled products, harmonisation of booking periods, use of same units. Most parties agree that harmonisation of regulatory methodologies is not needed or is a bridge too far at the moment, for example for cost de-termination. Harmonisation is not necessarily making everything the same, but can also mean making items compatible. Harmonisation should be on capacity products, balancing arrangements, operational rules, maintenance coordination, information flows between TSOs, etc.

One of the minor problems mentioned (mainly by trading parties), which could be relieved by harmonisation, was the difference in the definitions of capacity (technical, interruptible, backhaul, short-term), periods (booking, nomination, gas day), definition and (risk-reflective) pricing of interruptible capacity which increases the complexity and hereby transaction costs

and thus poses a barrier to entry for potential new entrants. Some parties opted to only charge an exit tariff or to incorporate exit charges in the distribution tariffs as is done in the electricity sector. This would prevent pancaking of tariffs and make trade between hubs eas-ier.

Heterogeneous views regarding the use of separate transit tariff regimes

Individual answers do not add up to a homogenous or clear picture regarding the issue of a separate tariff system for domestic and cross-border transport. Whereas some parties de-fend the existence of separate systems, especially in countries with a very high cross-border volume compared to the domestic transport volume, others state that there is no claim for separate treatment, as making a difference decreases liquidity in the respective markets.

Interestingly, some parties raised the argument that cross-border transport tariffs should be higher than domestic tariffs, as transit flows are less predictable in the long-term (e.g. with new international pipelines to be built in the near future), and therefore the volume risk should be reflected. Making no distinction (in regulation) between domestic and cross-border investments would in fact mean socialising of costs. Applying Article 22 of the Directive is a way to distinguish between this. On the other hand, some parties stated that cross-border tariffs should indeed be lower than domestic tariffs, as international transit flows are more stable and more easy to administrate, and thus would lead to a positive impact on the overall stability of the whole system.

Regarding separate tariff systems on transit and domestic transport, interestingly enough, the different positions are not taken up by different groups of stakeholder as regulators or network users, but lines were rather running along the national borders of systems applying such a separation and those who do not.

3.3.2 Investments

Insufficient investment signals

Almost all interviewed parties agree that investment signals as part of the overall tariff ture are either non-existent or not working well. It is stated that current tariff levels and struc-tures have no impact whatsoever on investments, i.e. they do not trigger investments. Some parties even claim that in fact, regulated tariffs cannot signal investments, they can merely

allow for investments, and that tariffs are thus mostly set without reflecting congestion at cer-tain points or in cercer-tain pipelines. At the same time, most parties wish that investment sig-nals were visibly included in the overall 'tariff' structure. The appropriate mechanism men-tioned by many of the respondents should be market based, e.g. auctions.

Open season procedures need (more) cooperation

Open season processes are criticised by most parties, at least the way in which they are op-erated today. Most complaints from the network users’ side refer to the lack of cooperation and coordination of open season processes between neighbouring countries and national TSOs and NRAs, as well as the long time these processes take. Conversely most TSOs and NRAs do not mention a lack of coordination or even explicitly mention the high level of coop-eration achieved nowadays. However everyone agrees that coordination is necessary if not crucial. The focus is seen as still being quite national instead of regional, and sometimes national legislation goes beyond European legislation, making coordination very difficult.

Interestingly, while on the network users’ side the issue was raised that not all the capacity they committed to in an open season was built, regulators stated that capacity committed in open seasons was much too high and would lead to excessive capacity. Network users also especially criticise that the commitment is asymmetric, as they have to commit themselves firmly without the certainty of knowing what they will get in the end. Moreover, network users complain that they have to commit to long term capacity contracts while tariffs can change during this period.

Network users press for more international cooperation between TSOs and NRAs, in order to prevent a mismatch of capacity. It is mostly agreed that at EU level the principles for such coordination can be set, whereas actual implementation is more likely at regional level (e.g.

Regional Initiatives). In the current system it is considered difficult to invest in one country if this improves the performance of the gas market in a neighbouring country, as no cross-border compensation mechanism is in place (the interviewed parties mentioned in particular the investment into compression capacity to redirect flows to neighbouring countries in case of a major crisis, e.g. interruption of gas supplies via Ukraine).

3.3.3 Balancing

Differences of balancing regimes hamper cross-border trading

Existing differences in balancing regimes are not seen as impregnable barriers to trade. If the rules are transparent and non-discriminatory the market is able to handle these differ-ences. It was stated that when this is not the case, potentially avoidable costs arise and thereby competition is distorted, especially between (large) incumbents and (small) new en-trants, which is an issue mainly pointed out by regulators and new entrants.

Balancing gas procurement and balancing period should be harmonised

Regarding harmonisation of balancing regimes there are two topics which were mentioned by all parties interviewed. Firstly, there is consent on the fact that procurement of balancing gas should be market based, and thus the resulting imbalance charges should also be mar-ket based and thereby cost reflective. This would result in a neutral financial position for TSOs, as expressively mentioned by some parties (mostly from the network users’ side).

Secondly, all parties agree that the balancing period, i.e. daily vs. hourly balancing, should be harmonised. Most parties are in favour of a daily balancing system, possibly with within-day constraints where network users are responsible for staying in balance and the TSO takes care of the residual balancing.

Need to prevent arbitrage between different balancing systems

Almost all parties stressed the fact that different systems do not only lead to increased costs, but could (theoretically) enable market players to exploit the differences in the systems by exporting their imbalance to the country that is least expensive for them. In practice this de-pends on functioning markets and the ability to acquire the capacity needed for such short-term transactions. There is consent that shifting imbalances from one system to another is justified as long as it mirrors the different physical abilities of these systems to provide flexi-bility. However, it was also mentioned in several interviews that a shifting conducted against the overall advantage of the whole system should not be tolerated.

Regional balancing appreciated

All parties seem to welcome the idea of regional balancing. According to the respondents, it would be even more important for the integration to run alongside the major gas flows and only where sufficient cross-border capacity is available, with the size of a balancing region depending on the physical properties of the network and the availability of flexibility tools.

The widespread opinion is that this process would fit well with the integration of market ar-eas, or, in other words, regional balancing would expectedly lead to the integration of market areas.