Pilot Project on Market Coupling
PEG Nord / PEG Sud
3rd Workshop on Gas Target Model
London
11 APRIL 2011
Preliminary note
• GRTgaz and Powernext are actively working on the Target Model as
well as on the market coupling pilot project in France. GRTgaz and
Powernext believe that Market Coupling is only one of the many
topics to be covered by discussions related to the Target Model,
such as the optimal size of market areas, consistency of long term
and short term mechanisms, price signals for the development of
new interconnection capacities…
• GRTgaz and Powernext hope that this presentation will in any case
contribute to the design of the future organization of the European
gas market
A need for a large French
hub
• French hubs under fast development
• Market participants almost
unanimous:
– Need for a single French hub
– In the short term:
• Need for solutions to better connect market
zones by optimizing capacity utilization
• Need to increase market liquidity and access to
zone Sud
CONTEXT
Current situation
• PEG Sud less liquid than PEG Nord
GWh/month
Day-Ahead traded volume on Powernext
PEG Nord - PEG Sud
1 400
1 200
Spot Volumes - Geographical
Distribution (%) Year 2010
1 000
800
5%
600
19%
400
200
76%
0
2/2011
1/2011
12/2010
PEG SUD Total Traded Volume (DA) (MWh/day)
11/2010
10/2010
9/2010
8/2010
7/2010
6/2010
5/2010
4/2010
3/2010
2/2010
1/2010
12/2009
11/2009
10/2009
9/2009
PEG NORD Total Traded Volume (DA) (MWh/day)
Spot PEG Nord
Spot PEG TIGF
Spot PEG Sud
Spread difference vs.
regulated tariff
• Regulated tariff is higher than the spread value
Spread EOD (PEG Sud - PEG Nord) EUR/MWh
North to South Regulated tariff
0,80
0,60
0,40
0,20
0,00
-0,20
-0,40
-0,60
-0,80
-1,00
2011-02-25
2011-01-28
2010-12-30
2010-11-30
2010-11-02
2010-10-05
2010-09-07
2010-08-09
2010-07-12
2010-06-14
2010-05-14
2010-04-15
2010-03-16
2010-02-16
2010-01-19
2009-12-17
2009-11-19
2009-10-22
2009-09-24
-1,20
Different options to create a
single Hub
• Full zone merging
– Either via significant investments
– Or via a combination of investments (including reinforcement of the
core network on North and South market areas) and contractual
arrangements (such as flow commitments)
 A mid to long term option (2016) due to the necessary investments
• Enhanced connection of existing zones
– Via market coupling between PEG Nord and PEG Sud, thanks to a pilot
project initiated by Powernext and GRTgaz
MARKET COUPLING EXPERIMENTATION
PEG NORD / PEG SUD
A market coupling project
suitable for gas business
• Continuous trading of gas : main differences between
gas and electricity
– Gas supply is far more flexible than in electricity as it is
storable
• No need for production plant call in advance as in electricity;
access to storage, LNG terminals, etc.
• Daily balancing regime in France
 no need for auctions: continuous trading of gas is the standard
organization of the market and better adapted to its needs
Main design issues
•
Need
One single French hub as a long term objective
In the short term, better connection of markets and optimization of capacity utilization
Context
and
constraints
Easy and flexible mechanism that
can be implemented rapidly …
Questions
Design a market coupling mechanism adapted to gas :
- Capacity dedicated to the pilot project ?
- Mechanism for allocating capacity ?
- Products to be marketed ?
Solution
… that makes available to the
market unsold capacities at
market price …
Pilot project Market coupling PEG Nord/ PEG Sud
…and keep gas flexibilities
Capacity dedicated to the
pilot project
• For this experimentation, it was decided to dedicate 10
GWh/d of day-ahead firm capacity in both directions (5% of
total firm capacity)
– This capacity was unsold after the Open Subscription Period for
annual capacity, it will not be made available through any other
short term product (monthly, daily) other than market coupling
– The mechanism does not rely on sold unused capacity (no
restriction of re-nomination rights)
Mechanism for capacity
allocation
• 3 mechanisms were studied and discussed in order to allocate the
available capacity:
1. Through an explicit auction of capacities on an ad-hoc platform
2. Through an auction of gas molecule, combined with implicit
allocation of capacities
3. Through a defined time window where all market participants
can disclose their needs (continuous trading) which will be
matched with available capacities at a random time
• The third mechanism has been chosen because it can be integrated
within continuous trading, which is the standard organization for
the gas market
Products to be marketed
• Capacity rights or spread products?
– Trading capacity rights needs property transfer while trading spread
products does not
• Spread products are:
– Easier to trade and manage for participants (Trayport technology –
standard in the gas sector)
– Easier to implement for GRTgaz and Powernext
– More flexible (participants can valuate all their flexibility means in
spreads: storage, transport, etc.)
– Identical to capacity rights on Day-Ahead products as there are no
maintenance risks
 Capacities will be made available by GRTgaz through spread
products on the Powernext screen
Products to be marketed
• What is a spread product?
PEG Nord
Buyer
quantity
price
1 000
2 000
24,050
24,000
Spread product : PEG Sud / PEG Nord
Seller
price
quantity
24,200
24,250
1 500
250
Buyer Nord → Sud
quantity
price
1 500
Seller Nord → Sud
price
quantity
0,050
Implicit need to buy
a 1 500 MWh gas flow from North to South
at 0,050€/MWh
PEG Sud
Buyer
quantity
price
1 500
500
24,250
24,200
Seller
price
quantity
24,600
24,700
1 000
2 000
Products to be marketed
• What is a spread product?
PEG Nord
Buyer
quantity
price
1 000
2 000
24,050
24,000
Spread product : PEG Sud / PEG Nord
price
Seller
quantity
24,200
24,250
Buyer Nord → Sud
quantity
price
1 500
250
1 500
0,050
PEG Sud
Seller Nord → Sud
price
quantity
0,550
1 000
Buyer
quantity
price
1 500
500
24,250
24,200
Implicit need to sell
a 1 000 MWh gas flow from North to South
at 0,550€/MWh
allowing a corresponding reverse flow from South to North
price
Seller
quantity
24,600
24,700
1 000
2 000
Products to be marketed
• What is a spread product?
– Each participant can valuate its capacity or flexibility mean to flow gas
between North and South zones
PEG Nord
Buyer
quantity
price
1 000
2 000
24,050
24,000
Spread product : PEG Sud / PEG Nord
price
Seller
quantity
24,200
24,250
1 500
250
Buyer Nord → Sud
quantity
price
1 500
0,050
PEG Sud
Seller Nord → Sud
price
quantity
0,300
0,550
500
1 000
Buyer
quantity
price
1 500
500
Proposal to sell
a 500 MWh gas flow from North to South
at 0,300€/MWh
24,250
24,200
price
Seller
quantity
24,600
24,700
1 000
2 000
Products to be marketed
• What is a spread product?
– Spread products can increase liquidity on underlying markets
PEG Nord
Buyer
quantity
price
1 000
2 000
24,050
24,000
Spread product : PEG Sud / PEG Nord
price
Seller
quantity
24,200
24,250
1 500
250
Buyer Nord → Sud
quantity
price
1 500
0,050
PEG Sud
Seller Nord → Sud
price
quantity
0,300
0,550
500
1 000
Buyer
quantity
price
1 500
500
Proposal to sell
a 500 MWh gas flow from North to South
at 0,300€/MWh
24,250
24,200
price
Seller
quantity
24,500
24,600
24,700
500
1 000
2 000
Market coupling mechanism
•
One window during the core period of Powernext of 15 minutes when matching of
GRTgaz unsold capacities and best orders happens
– This mechanism is equivalent to an implicit auction embedded into the continuous trading
platform without implying any change in the market participants habits (except for spread
orders which are directly posted – which is an additional possibility)
PEG Nord
Buyer
quantity
price
1 000
2 000
500
24,050
24,000
23,950
Spread product : PEG Sud / PEG Nord
Seller
price
quantity
24,200
24,250
24,400
1 500
250
750
Buyer Nord → Sud
quantity
price
750
1 500
0,200
0,050
PEG Sud
Seller Nord → Sud
price
quantity
0,300
0,550
500
1 000
Proposal to buy
a 1 500 MWh gas flow from North to South
at 0,050€/MWh:
GRTgaz agrees to sell the corresponding quantity
Buyer
quantity
price
750
1 500
500
24,250
24,250
24,200
Seller
price
quantity
24,500
24,600
24,700
500
1 000
2 000
Market coupling mechanism
• Automatic matching of GRTgaz available capacities
– Corresponds to selling North to South (or South to North) gas flows at
a decreasing market price according to the order book
– Allows to match offer and demand between both virtual trading points
– Should facilitate price convergence (to be confirmed by the
experimentation)
– Should improve the global liquidity of both market zones (to be
confirmed by the experimentation)
Project planning
2011
January
February
March
April
May
June
July
August
September
Launch of PegSud/PegNord
spread contracts on
Powernext
CRE’s deliberation
on market coupling
project
GRTgaz starts its
interventions on Powernext
spread contracts
Assessment of
the coupling
mechanism and
improvements
Conclusions
• It is possible to design a market coupling mechanism, which is
suitable to the specific organization of the gas market and of
gas exchanges (continuous booking).
• A pilot project will be implemented in the coming weeks
between PEG Nord and PEG Sud : this pilot project should
help enhancing liquidity, fostering price convergence and
optimizing capacity utilization
• Market coupling is viewed as an interim step before merging
existing market zones