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Most important conclusions from the position paper


Reasons for introducing implicit allocation

Introducing implicit allocation related to arbitrage in case of price differences
NRAs within GRI NW consider that the introduction of implicit allocation will solve and improve the use of capacity, have a positive effect on liquidity, and can lead to price convergence and will solve existing. However, it can be expected that the introduction of CAM and CMP measures will also ensure that liquidity will increase and that price convergence will take place. It can also be expected that several requirements in the network code for CAM – such as bundling of capacity – could reduce transaction costs, which in turn could result in network users executing a cross-border trade that they now do not make. As a consequence, it could be expected that price differentials (the spread between two markets) will also (as a consequence of less transaction costs and thus more trades) be limited.
At this point in time – as the CAM and CMP measures are not yet implemented – it is difficult to predict to what extent the introduction of these measures will lead to lower price differentials between hubs and thus whether there would still be an added value for the introduction of implicit allocation. NRAs within GRI NW are therefore of the opinion that the choice to implement implicit allocation – if introduced for arbitrage in case of price differences – is to be made once the CAM and CMP measures have been introduced and the effects of these measures are known. As such, the decision to implement implicit allocation should be re-evaluated when CAM and CMP are up and running.
Introduction of implicit allocation related to the coordination problem
Gas fired power plants will serve as back up fuel for renewables and decisions about ramping up (or down) gas fired plants, due to unexpected changes in weather conditions, are likely to be made only a few hours before the delivery hour. As network users need to buy (cross-border) capacity and commodity (in the adjacent gas market) in a very limited period of time, NRAs within GRI NW consider that network users will face a coordination problem. NRAs within GRI NW consider that implicit allocation can be a means to solve the coordination problem.
While considering that the coordination problem will effectuate, NRAs within GRI NW acknowledge that at this point in time it is difficult to predict to what extent network users will precisely experience the coordination problem as a bottleneck for trading (both for optimizing gas fired power plants or in case of arbitrage). For this reason, the added value of introducing implicit allocation to optimize the sourcing of gas fired power plants should be re-evaluated once CAM and CMP are implemented.

Exploring the added value of implicit allocation through pilot projects

Although the decision to implement implicit allocation should be taken once the CAM and CMP measures are implemented, NRAs within GRI NW still consider that implicit allocation could already be implemented between two adjacent Member States if a cost/benefit analysis shows that this has added value.
If a cost/benefit analysis has a positive outcome, implicit allocation (via pilots) should ideally be explored on that border. As such, valuable experience with implicit allocation is obtained that can be used to answer the question whether implicit allocation is a viable allocation mechanism (next to explicit allocation). In the position paper, it is not explained what criteria precisely need to be taken into account or when the benefits for introducing implicit allocation are sufficient enough (both may differ between Member States and an analysis should be thus performed on a case-by-case basis). However, NRAs within GRI NW consider that a number of criteria could be taken into account:
  1. Price differences between two adjacent gas hubs;
  2. (Inefficient) use of cross-border capacity (e.g. flows against price differences);
  3. The existence of severe contractual congestion;
  4. Potential increase of liquidity in the two underlying markets;
  5. Better coordination of commodity markets and capacities for market participants;
  6. Decreasing need for additional investments.