ACER has released its Opinion on a recent decision concerning the bi-directional gas flow capacity at the cross-border Interconnection Point (IP) ‘Deutschneudorf EUGAL’ between Germany and the Czech Republic.

What is bi-directional gas flow capacity?

Under the European Security of Gas Supply Regulation, Transmission System Operators (TSOs) must establish permanent physical capacity for gas transport in both directions (bi-directional capacity) at all IPs between Member States. However, temporary exemptions can be granted following a detailed assessment and consultations with stakeholders, other Member States, and the European Commission.

ACER’s assessment

ACER reviewed the decision by Bundesnetzagentur, the German National Regulatory Authority (NRA), which was taken in coordination with the Czech Ministry of Industry and Trade. The decision accepts the German TSO’s proposal, which claims that the obligation for bi-directional capacity at the EUGAL IP has already been fulfilled. It concludes that both countries meet the necessary infrastructure standards for securing gas supply and that there is no need for additional capacities from the Czech Republic to Germany.

While ACER considers that the decision complies with most of the Regulation requirements, it identified two missing elements:

• a feasibility study; and
• a cost-benefit analysis (CBA).

Additionally, the TSO proposal and the decision state that the need for an exemption to maintain bi-directional gas flow capacity at the ‘Deutschneudorf EUGAL’ IP is no longer necessary, as bi-directional gas flow capacity could be ensured during a gas supply crisis scenario. However, ACER notes that no significant investments or capacity upgrades took place at this IP between 2020 and 2024.

What are the next steps?

ACER has submitted its Opinion to the relevant authorities of Germany and the Czech Republic, as well as to the European Commission for further consideration. The Commission may choose to either raise no objections to the decision or request modifications to it.

On 16 August 2024, the National Regulatory Authority (NRA) of the Netherlands asked ACER to decide on how to address the insufficient risk hedging opportunities at the bidding zone border between the Netherlands and Norway.

Why is a decision needed?

The assessments performed by the Dutch and Norwegian NRAs found insufficient hedging opportunities in their respective bidding zones. Sufficient long-term hedging opportunities are important to allow market participants to be protected against price volatility risks and to mitigate uncertainty on future returns on investments.

To improve this, NRAs can:

• Request their Transmission System Operators to issue long-term transmission rights.
• Ensure the availability of other long-term cross-zonal hedging products that can support the wholesale electricity market functioning.

Since the NRAs could not reach an agreement, the decision was referred to ACER and the EFTA Surveillance Authority.

What are the next steps?

To inform its decision-making process, ACER will run a public consultation from today until 22 November and will take a decision on the referral from the Dutch NRA by 17 February 2025.

The EFTA Surveillance Authority will issue a decision for Norway, following the procedure outlined in the EEA Agreement.

Today, ACER releases its third quarterly review of key developments in European gas wholesale markets as part of its 2024 Market Monitoring Report (MMR). The first and second publication were issued respectively in March and July 2024.

The report finds that despite supply uncertainty re-emerging, Europe avoided severe gas price volatility in Q3 2024. What’s novel in this quarterly edition is the new focus on the evolution of cross-border gas transport tariffs, which have been rising in recent years. While transport costs currently have a relatively small impact on price formation, their influence is expected to grow, affecting how the EU gas market operates in the future.

• Gas prices: In Q3 2024, European gas wholesale prices rose but remained less volatile than last year due to increased Norwegian supply, healthy storage levels, and low demand.
• Price integration: Price integration across most EU gas hubs remained consistent, although some divergence occurred due to the rising German storage levy.
• Gas demand: Stagnant household demand and a modest increase in industrial demand were outweighed by a reduced call on gas-fired electricity generation, leaving overall EU gas demand slightly lower than in 2023 and well below pre-crisis levels.
• Renewables continue to displace gas generation: Increased renewables’ output limited the opportunities for conventional power plants (gas and coal) to run profitably. This lowered carbon emissions, loosened the EU gas demand-supply balance and reduced instances of gas setting marginal prices in electricity markets.
• Storage: The EU reached its 90% gas storage target ahead of schedule, despite lower year-on-year injections throughout the quarter.
• Transmission tariffs: Gas transmission tariffs have been rising in some EU countries, with little evidence so far of impacting price convergence. More tariff increases are expected in the near-term, warranting monitoring of the effects of tariff changes on cross-border trade and market integration.

What challenges lie ahead?

• The Russian gas transit agreement through Ukraine expires in 2024, pushing Central Europe to seek alternative supply routes.
• If gas withdrawals this winter significantly exceed the previous years, the EU may face increased competition in LNG markets for 2025, potentially driving up wholesale gas prices.
• Several LNG production projects are under construction, but major new LNG volumes are expected only from 2026 onwards.

ACER will continue to closely monitor trends in the European gas markets that could lead to short-term volatility for European energy markets. The next update on the European gas wholesale markets will be published early in 2025.

Check out our other 2024 MMR publications.