The EU Agency for the Cooperation of Energy Regulators (ACER) found improvements in the selection of projects of common interest (PCIs) for trans-European energy infrastructure such as a list of gas projects where sustainability criteria has been considered and a more objective process for selecting electricity projects. However, in both ACER Opinions on the matter published today, one on gas projects and another one on electricity's ones, ACER also notes shortcomings including lack of transparency in the assessment methodologies.

The opinions also include the view of National Regulatory Authorities on specific candidate projects and provide further recommendations for future PCI selection processes.

ACER acknowledges the efforts by the European Commission to enable a smooth selection process, despite the pandemic-related difficulties prevailing at the time of the PCI selection.

Selection of gas projects resulted in shorter PCI list

The path towards decarbonisation shows in the selection of a shorter list of projects in the field of gas, where sustainability criteria has been considered.

In its opinion, ACER also highlights positively the fact the consultation period for PCI candidates was extended and that the indicators used in the infrastructure needs' methodology were simplified and aligned with the projects assessment's methodology. Furthermore, consistency was improved by applying the same threshold value across Regional Groups for project selection.

More objective selection process for electricity projects

In the field of electricity, ACER welcomes the European Commission’s steps towards a more objective selection process. This has been achieved by reducing the number of potentially subjective benefits established by project promoters and by eliminating the enhanced socio-economic welfare approach used in the previous PCI selection round.

Shortcomings for an in-depth analysis

Due to a lack of transparency in the assessment methodologies, ACER was not able to assess fully the consistency of the application of the criteria and the cost-benefit analysis in accordance to the EU Regulation for Trans-European Energy Infrastructure. In addition, while the regulation requires the consideration of multiple scenarios when selecting electricity projects, only one scenario was used.

ACER calls on the Regional Groups, responsible for proposing and reviewing projects of common interest, to continue their work on further improving the transparency of the process and the methodologies for assessing the candidate PCI projects taking into account ACER’s recommendations included in its Opinions.

Access the electricity PCI Opinion (its Annex) and the gas PCI Opinion.

Energy commodity prices have reached unprecedented high levels across Europe. Gas prices in October 2021 are 400% more expensive than in April 2021. Power prices have increased by 200% (driven mainly by the increase in gas prices). Governments are interested in identifying the key drivers and in determining if it is a temporary shock or a permanent shift. The answers to these issues will help inform their policy response.

Today, the EU Agency for the Cooperation of Energy Regulators (ACER) publishes a note providing data and insights on the recent high energy prices in Europe. ACER’s note on high energy prices:

• identifies the drivers and the impact on price levels across Europe;
• provides the dominant market outlook of how long it is likely to last;
• looks at certain market behaviours; and
• touches on some important policy considerations (both short term and longer term).

Why are energy prices so high and how long will it last?

While various factors have contributed to the high energy prices in Europe, the main driver is the surge in the price of natural gas, caused mainly by a tight global LNG market. Forward markets expect a significant drop in wholesale prices for gas and electricity in spring 2022. A key variable in the very near term is the upcoming winter and its implications for gas demand.

Policy considerations – short term and longer term

The European Commission’s is preparing  a “toolbox” of measures that national governments could use to respond to price hikes without endangering the functioning of EU wholesale markets. This note by ACER touches on a few select policy considerations related to this response, namely:

• disproportionate effects of high prices on vulnerable consumers and the possibility for Member States to mitigate this in the short term without unduly distorting fundamental market signals;
• the functioning and rationale of the current EU electricity market design vis-à-vis the current high prices;
• certain issues related to gas supply going forward such as possible joint purchasing of strategic gas reserves as well as possible obligations for gas storage; and
• longer term transition trajectories and the link to holistic policy.

Today’s energy price squeeze is a reminder of Europe’s still high-dependency on imported fossil gas and the inherent volatility of global commodity markets. It is also a reminder that a well-designed energy transition pathway going forward will rely on holistic policy that targets demand just as much as supply, focusing on both the short-term and the long-term. As such, Europe’s transition pathway will likely need to be a more “managed transition” in the years ahead with both government and regulatory monitoring playing a significant role.

See also the ACER Director’s presentation on Europe’s energy prices to Finance Ministers at the 4th October Eurogroup meeting.

Top of the agenda of today’s Eurogroup meeting (4th October 2021) is the macro-economic situation in the euro area, including inflation and energy price developments. 

The Eurogroup is an informal body in which the Finance Ministers from the Eurozone discuss various euro-related matters concerning their countries' common responsibilities. Its main task is to ensure close coordination of economic policies among the euro area’s member states and promote conditions for stronger economic growth.

Mr Cristian Zinglersen, Director of the EU Agency for the Cooperation of Energy Regulators (ACER), was invited as a guest speaker today to update the Eurogroup on recent energy price developments. 

Among various topics, Mr Zinglersen addressed:

• the drivers of the energy price developments and impacts across Europe

• the outlook for the next six months, and

• policy considerations (short term, market design and broader energy transition pathways).

He explained that global gas (LNG) supply/demand dynamics play a key factor impacting energy prices, that the tight market conditions are expected to relax in Spring 2022, and that the policy implications are significant.

Register to ACER newsletter not to miss any updates on this topic.

In the meantime, check out the ACER Director’s slides.

The EU Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER) publish their joint White Paper on Rules to Prevent Methane Leakage in the Energy Sector. The White Paper is the outcome of a survey of National Regulatory Authorities.

It presents the views of ACER and CEER on the European Commission’s Communication on an EU strategy to reduce methane emissions.

The paper has 13 recommendations covering six areas:

• the general scope and the overall approach to the introduction of rules to prevent methane leakage in the energy sector,
• monitoring and detection
• quantification
• reporting
• validation and mitigation, and
• the regulatory treatment of costs related to methane emissions.

Access the White Paper. 

The paper is one of a series of ACER-CEER “European Green Deal” Regulatory White Papers.

Register for the ACER-CEER Methane Emissions Webinar (14 September).

The EU Agency for the Cooperation of Energy Regulators (ACER) has published its latest Balancing Monitoring Report including a comparative performance assessment of the gas balancing zones of 22 Member States with the aim to assist National Regulatory Authorities for Energy (NRAs) and Transmission System Operators (TSOs) understand the strengths and weaknesses of each regime.

Transparent balancing systems pave the way for fairly priced balancing products, and consequentially lead to efficiency gains at the wholesale level, which should ultimately benefit final consumers.

Most relevant findings on balancing systems design, imbalances, and TSO’s balancing actions are:

• Greece – No trading platform is evident.
• Romania – Several days of TSO balancing actions on both sides of the market with inverted prices, which is not a straightforward outcome.
• Italy – The use of storage tools side by side with short-term standardised products and high levels of long and short imbalances subject to cash-out, compared to other balancing zones.
• France – The availability of the linepack service (GRTgaz’s Alize, Teréga’s SET) partly undermines the incentive of network users to balance themselves fully on a daily basis. 
• Germany – High levels of costs visible in balancing, although these might be justified in the context of wider benefits of variant 2 insofar as it supports competition amongst gas suppliers and which might be the subject of a cost-benefit assessment.
• Croatia – Pricing effects may result from the combination of illiquid balancing market and default imbalance pricing rules that may create instability.
• Lithuania – The system is apparently always short, necessitating only TSO balancing buys, and the balancing regime may be distorted via facilities that allow network users to trade after-the-end of the gas day.
• Hungary – Still using two trading platforms which may fragment short term market liquidity and transparency of price formation.
• Czech Republic – Most imbalance cashouts are avoided via an after-the-day trading of linepack flexibility whereby, effectively, network users are allowed to trade after the end of the gas day.
• Spain – The data submission implies that only within-day title products are used for TSO balancing, yet some aspects raise questions about the need to refine the TSO’s balancing policy.
• Slovakia – Limited TSO balancing actions are fragmented across balancing platform trades and balancing services rather than being focussed on the trading platform.
• Slovenia – Outcomes may be distorted by wide imbalance price differentials which give rise to a bias towards balancing sells other than during some discrete periods within year when balancing buys are dominant.
• Ireland and Latvia-Estonia – The TSO balancing actions are dominated by system sells.
• Denmark-Sweden – Imbalances are higher than observed in our analysis in earlier years, possibly due to a temporary decrease in domestic gas production.

The report, which is the 5th annual report published by the Agency on the matter, has suggestions for further research on balancing implementations in the EU gas markets. ACER considers that a closer look at national balancing systems is needed in case of:

• High price differentials between TSOs balancing actions buy/sell and network users buy/sell.
• High values of network users’ imbalances or TSOs’ actions.
• System asymmetries on either the buy or sell side.

Access the report.

How was the assessment done?

The principal objective of this year’s monitoring has been to offer automated calculations for the indicators of the Balancing Analytical Framework (BAF). These indicators, which describe various aspects of balancing implementation, were first presented by ACER in its 2nd Report on the Implementation of the Balancing Network Code. The work has involved setting up a new IT system to capture data inputs and to process them. The automation will support to systematically assess individual balancing regime performance and cross-balancing regime comparison in the future.

What does the cross-balancing regime comparison show?

ACER compared the 22 balancing regimes using 8 key indicators and paid particular attention where the selected indicators showed extreme values in this cross-country comparison. Briefly, the indicators describe:

• Four of them, the residual role of the TSO with a reference to the frequency and the average price spreads concerning the TSOs’ buy and sell actions.
• Three of them, the network users’ balancing activity looking at the imbalance quantities of the network users, the average imbalance prices and price spreads, in order to understand the different incentives network users might face within the different EU balancing regimes.
• Finally, a single indicator explains the net payments charged or credited to network users, assessing whether these payments are of a high value.

The indicators suggest that some implementations could evolve in order to maximise the benefits from the implementation of the Balancing Code.

What comes next?

The Agency sees two significant strands of activity that could support implementation in the upcoming years:

• The first strand would involve enhancing the IT application, for example allowing access to the data and outputs for individual NRA/TSO.
• The second strand would be for ACER to perform further studies with increased interaction with NRAs/TSOs/stakeholders about the local specificities of balancing regime implementations and deepen the qualitative part of the analysis, as it was done in earlier reports.

The Agency welcomes the stakeholders’ feedback on this report and solicits views about the suggested next steps. 

Main recommendations

The application of the BAF, in particular the cross-regional comparison, may help NRAs to refine the national balancing regimes. In ACER’s view, key regime parameters (e.g. small adjustment in imbalance cashout pricing, the performance of the information systems) should change, as the market evolves. The evolution of the market will create further opportunities to refine the design and/or certain parameters to deliver more efficient outcomes.

The Agency notes that progress has, and continues, to be made. The Agency observes as well that a few countries may be incompliant with certain provisions of the Balancing Code. Whilst this year’s analysis has been focussed on an assessment of effectiveness, it remains desirable to review compliance in a future study.

The EU Agency for the Cooperation of Energy Regulators (ACER) publishes today a Recommendation, addressed to national regulatory authorities (NRAs), on setting the level of the multipliers used for the calculation of gas transmission tariffs applied to non-yearly capacity products.

Why are multipliers relevant?

Multipliers are used to calculate the reserve prices of quarterly, monthly, daily and within-day gas capacity products, and they have an impact on network users’ booking strategies.

More specifically, the Network Code on Harmonised Transmission Tariff structures defines the level for day-ahead and within-day multipliers for standard capacity products to be between one and three. ACER carried out a public consultation in November and December 2020 to assess the possibility of setting a lower cap for multipliers for day-ahead and within-day capacity products.

What are the main recommendations?

After a careful assessment, ACER recommends NRAs to better substantiate their decisions regarding high daily and within-day multipliers, taking into account the specificities of each interconnection point and detailing their regulatory objectives (market integration, liquidity, competition, cost reflectivity and tariff stability, etc.). NRAs of Member States connected by transmission pipelines should also better coordinate their decisions when setting multipliers in combination with seasonal factors.

Access the Recommendation 01/2021.

Read more on its Annexes I and II (overview of multiplier levels & analysis and evaluation of responses).

The European Commission’s hydrogen strategy acknowledges the potential future need for transporting hydrogen over long distances throughout Europe. Two main options are considered for connecting supply and demand by transporting hydrogen:

• building new hydrogen-carrying pipelines or
• repurposing existing natural gas pipelines for transporting pure hydrogen.

In order to assess these options, ACER reviewed more than 20 studies focusing on the technical and the cost aspects of repurposing existing gas infrastructure to pure hydrogen. The analysed studies range across various sources and stakeholders, including the gas industry, multi-partner hydrogen initiatives, industry partnerships, academia, think tanks, and others. As a result, ACER developed a summary paper on the technical possibilities for repurposing, based on these available studies. The paper also offers a reflection on the technical and hydrogen market conditions that could trigger the repurposing of natural gas pipelines to pure hydrogen.

What are the main findings?

• Repurposing is feasible and cheaper than building from scratch: as a rule-of-thumb, repurposing does not present insurmountable technical challenges and is cheaper than building new pure hydrogen networks.

• Studies also draw attention to the suitability of salt cavern facilities for storing hydrogen, noting that these facilities are geographically clustered in selected areas in a few EU Member States.

• Ways of hydrogen transportation: similarly to natural gas, trucks and ships can also transport pure hydrogen. In all cases, distance and volume are the main drivers determining the most cost-efficient mode of transportation. However, at this time, transporting pure liquefied hydrogen by ship is not cost-efficient. Shipping hydrogen as a constituent of ammonia appears to be considerably cheaper.

• Future pure hydrogen networks: studies offer divergent visions of the future extent of pure hydrogen networks. These visions range from a large-scale, pan-European backbone transmission infrastructure primarily based on repurposed natural gas networks, to regional, cluster-like systems handling hydrogen supply and demand in closer geographic proximity. Several studies conclude that, based on industrial hydrogen demand, technology and cost assumptions, there is no indication that a large-scale pan-European hydrogen network would be justified.

• Repurposing to hydrogen may be conditional on:

  1. the presence of loop (parallel) lines in natural gas pipeline systems, so that at least one string could be repurposed to pure hydrogen,

  2. ensuring security of natural gas supply to consumers during the conversion phase to pure hydrogen,

  3. hydrogen market uptake in the area serving a pure hydrogen corridor.

It is uncertain when and where these conditions for repurposing would be met across Europe, and whether they will be met at all.

Following a cautious approach in the implementation phase of pure hydrogen corridors seems to be a reasonable strategy, where repurposing would be triggered by compelling hydrogen market commitments and demand expectations. 

The review is provided on a “best effort” basis and should be seen as a “live reference document”, which may need to be further updated as more knowledge about the future of hydrogen networks emerges. 

ACER and energy regulators will continue discussing the repurposing outlook and stand ready to exchange views with all stakeholders, with the goal of delivering on the decarbonisation targets, as well as ensuring cost-efficient and cost-effective solutions to the benefit of energy consumers.  

Access the Review.

Despite the unprecedented impact of COVID-19 over the economy of the EU, the functioning of the EU gas market continued to improve in 2020. This has been evidenced by an increase in markets’ price integration and supply competition, as well as by the rise in liquidity at many gas trading hubs. Markets representing three quarters of EU gas consumption are assessed today as well functioning and sufficiently integrated. Other jurisdictions with some of the historically less developed hubs are also showing promising signs of progress.

This is one of the main conclusions of the first volume released (Gas Wholesale Volume) of the annual Market Monitoring Report (MMR) developed by the EU Agency for the Cooperation of Energy Regulators (ACER), the Council of European Energy Regulators (CEER) and the Energy Community.

With the volume on Gas Wholesale being the first to be published this year; the other two volumes, namely, Electricity Wholesale and Retail and Consumer Protection, will be released later this year. 

The Gas Wholesale Volume published today presents the results of monitoring the gas markets of the European Union and the Energy Community (a selection of neighbouring countries in Southeast Europe and the Black Sea region committed to extending the EU internal energy market). The volume assesses the progress made towards a fully functioning internal gas market. Complementarily it offers recommendations to overcome some identified barriers that can still hinder the competitiveness of selected markets or limit their market integration.

Access the Gas Wholesale Volume. 

Coinciding with the launching of this volume, ACER presents a series of key facts of the EU gas sector. 

COVID-19 together with LNG rising imports depressed prices, bolstered hub liquidity and reduced cross-border flows

The significant impact of COVID-19 on gas demand, together with the irregular import volumes of liquefied natural gas (LNG) led to a series of supply and demand rebalances throughout the year. This setting impacted on prices, market liquidity, cross-border flows and other key metrics, some of which moved to levels not seen before. 

The COVID-19 related reduction in economic activity led to a substantial decrease of gas demand in the second quarter of 2020.  That coincided with record deliveries of LNG and record-high gas stocks in underground storages in the first half of the year. All these factors, together with the reduced prices of other energy commodities, resulted in historically low EU gas hub prices in spring and early summer of 2020. However, gas demand recovered after summer, while LNG deliveries decreased substantially from the third quarter onwards because many cargoes shifted away into Asian markets. Hub prices recovered accordingly and by the end of the year, they had climbed beyond 2019 levels.

Hub traded volumes also reached historical highs increasing by 14% as market participants continuously re-adjusted their positions due to the changing supply balance and the high price volatility.

Common EU rules are bearing fruit; neighbouring countries are starting to apply them

In light of record-high price volatility, the price convergence between EU gas hubs increased compared to 2019. Amongst other reasons, abundant supply and availability of interconnection capacity smoothed regional price differences. Though full price convergence is not the aim of the Internal EU Gas Market, greater price convergence indicates that market integration is improving.

Network codes, the common EU rules intended to facilitate the harmonisation, integration and efficiency of the European gas market, are producing results. For instance, cross-border gas flows are progressively becoming more responsive to hub price signals assisted by the higher flexibility that the codes grant to transport capacity bookings. Also due to EU regulation, the balancing of gas systems has become more transparent and market based. That has also helped to improve the liquidity in some spot markets.

As of 2020, all gas network codes are also applicable in the Energy Community Contracting Parties. However, their implementation advanced only in Ukraine, generating the first beneficial effects on market integration with EU neighbouring countries. Due to some positive regulatory changes, also gas trading activity substantially increased in Ukraine.

Does gas contribute to decarbonisation?

In recent years, gas has contributed to the EU energy sector decarbonisation by replacing higher carbon emitting fuels like coal and in some instances oil in power generation. However, gas is also a significant source of greenhouse gas emissions in its own right. Therefore, conventional natural gas needs to be fully replaced by alternative energy sources or by low-carbon and renewable gases in 2050. To enable such a shift the European Commission will shortly launch a review of the gas legislative framework as part of its Fit for 55 package.

The supply share of low-carbon gas is still low in the EU even if it has doubled in the last 10 years. Low-carbon gases accounted for only 3.8% of total gas supply in 2020, chiefly in the form of biogas. This is because the cost of the currently cheapest low-carbon gas, biogas, was three to four times higher than the price of conventional natural gas at average 2020 prices. Green hydrogen produced at water electrolyser facilities with renewable power is becoming central in the EU hydrogen strategy. However, at present, it remains limited compared to future expectations, while less than 3% of commercial hydrogen supply was produced using electrolysis in 2020. A combination of market, technological and policy drivers will determine the reach of each low-carbon gas technology or alternatives in the years to come.