What has been a long road in board rooms across Europe is finally hitting the pipeline this fall.
Starting with project discussions in November 2017, the moment has finally arrived: Trading Hub Europe will be implemented on October 1, 2021. Considered to become one of Europe’s most attractive and liquid gas marketplaces, staying on top of the changes is in the best interest of all market players.
In order to stay on top of the developments, we made a list of the 5 most important topics to be aware of by October 1.
1. Market area and point names will change
The first change to the market area will be a change in terminology. Given the integration of Gaspool and NCG as individual market areas, the names of some points will change.
Instead of Gaspool and NCG remaining separate entities, the market will be merged into one unified area. The new area is called Trading Hub Europe (THE). The market will operate out of its offices in Berlin and Ratingen.
VIP Waidhaus NCG will become VIP Waidhaus
VIP Brandov Gaspool will become VIP Brandov
With two market areas merging to one, the mechanics of these lines and the points along them will change. Several network interconnection points—IP Gernsheim, for example—will no longer sustain bookings and nominations. Gas will still flow through these points, however.
Due to the updated status of these points, some routes—such as those to VIP France-Germany—will become more streamlined. Instead of four bookings, one may only need two to complete the desired route.
While some network interconnection points no longer require bookings and nominations to be transported through them, other points have been modified in terms of the product type available for nomination. Take the time to evaluate all the points in your portfolio to ensure optimised bookings in the months to come.
2. More Virtual Interconnection Points (VIPs)
A unified market means a new Virtual Trading Point: THE. The VTP facilitates new connections via Virtual Interconnection Points (VIPs). These connect Germany along the the borders of Belgium, Denmark, and the Netherlands.
The new VIPs are laid out in the following way:
VIPs TTF-THE-L and DK-THE will be introduced right away, on 01.10.2021. For both of these VIPs, the first auction will be a day-ahead auction on 30.09.2021.
For the latter two VIPs, THE-ZTP and TTF-THE-H, the exact introduction and first auction dates have yet to be confirmed. We are projecting a start in early spring 2022 for these two VIPs.
As of now, consolidating the points at the border of the Czech Republic is not planned. The two existing VIPs (VIP Brandov-Gaspool and VIP Waidhaus-NCG) at that border crossing will function as usual after the merger, though their names will change to VIP Brandov and VIP Waidhaus respectively.
3. Updated products
As we know, the German market today offers a variety of capacity products:
Freely allocable capacity (FZK)
Conditionally firm freely allocable capacity (bFZK)
Dynamically allocable capacity (DZK)
Interruptible capacity (uFZK)
The market merge involves big changes to the products. As of 01.10.2021, all products can be used for solidification.
For capacity products DZK and bFZK, individual updates will impact future bookings and nominations that are essential considerations for transport and trade.
a. Dynamically allocable capacity (DZK)
As a result of the market merger, DZK is becoming harmonised. This means that booked DZK may be brought into any balancing group to be solidified with the other capacity products. DZK must still have a balanced nomination to remain firm, but no extra DZK balancing groups are necessary.
From 1. October 2021, DZK can also be combined with any other capacity product. And in terms of long-term contracts, TSOs can make the decision to adjust their DZK contracts to what will now be known as DZK1 contracts. In some cases, some products will require sub-balancing codes to ensure nominations are applied to the correct product type.
The shipper is responsible for knowing whether these parameters apply to their running DZK contracts. Consult the relevant TSO with which you have the contract to confirm these details.
Route allocations will now be optimised directly by the Transmission System Operator. Get in touch with the relevant parties to learn more about the technicalities.
b. Conditionally firm freely allocable capacity (bFZK)
While DZK is directly impacted by the market merger, there are other products that are seeing changes not due to the merger itself, but to simultaneous transparency updates.
The biggest change to bFZK is the basis of the product. What was once a flow- and temperature-based product will now become a temperature-based product only.
Temperature is based on the forecast of the previous day. At 13:00 CET the day before, the interruption will be published on the GRTgaz Deutschland GmbH website. The source for temperature forecasts is DTN the weather service utilised by Open Grid Europe GmbH.
How does temperature influence bFZK? Below 0° C, the product will be considered firm. Above 0° C, the product will be considered interruptible.
Note that bFZK will only be offered at the entry points of VIP Oberkappel and VIP Waidhaus. And for all entry tariffs of bFZK, there is a 10% discount to consider. The discount is applicable to product bookings via OGE and GRTgaz Deutschland.
Another important update is to interruptions notices. From 1 October 2021, the interruptible share of DZK and bFZK will be interrupted after all other interruptible capacities.
Look to the TSOs for information on interruptions. Every day at 13:00 CET, they will publish whether bFZK for the next gas day will be interrupted or not. bFZK products will continue to be auctioned as firm capacities. This is part of the so-called KASPAR publication.
While some things change, others stay the same. Interruptible capacities for each firm product will still be available in each of the auction periods (daily, quarterly, monthly, and yearly).
4. Overbooking/buy-back mechanism
Due to the market merger, there will be a reduced amount of capacity capable of flowing through the existing infrastructure. To circumvent the constraints of demand, the TSOs in cooperation with Trading Hub Europe have developed a mechanism to manage this situation.
The TSOs operating within the new market area constructed a mechanism that will free up available capacity. Shippers will be able to access these additional capacities without having to rely exclusively on technical capacities.
Beyond flexibility, the concept removes dependencies on individual capacity products for when the market is tight, leading to more options for the shippers and less bottlenecks in the infrastructure.
The concept consists of two main prongs:
Market Based Instruments (MBIs)
These are the types of MBIs that will create the available capacities in a tighter demand scenario:
Third-party network use
Both prongs of the model, MBIs and buy-backs, will only come into effect once alternative measures have been depleted. One example of this is the interruption of interruptible capacities.
In the case that market-based instruments need to be utilised, they will go first to a price-based merit order list to prioritise which type of MBI is used first. As a last resort, capacity buy-backs may be processed.
The Bundesnetzagentur (National Network Agency), the regulatory authority ruling this model, has set forth a test phase to measure its functionality. Starting December 2022, the TSOs must report yearly on this functionality.
The testing period lasts from 01.10.2021 to 01.10.2024. At this point, the authority will have assessed its efficiency and made the necessary adjustments. The use of the oversubscription and buy-back scheme acc. to Reg(EC)715/2009 Ann. 1 will be suspended and replaced by further action.
5. Other considerations
The new market comes to us at a time in which the German power market is especially volatile. Coal, for example, has seen surges in demand in the second and third quarters of 2021.
We may trace the increased demand for coal and lignite, which is at a historical high, to two main factors:
Low gas production in Germany
A lack of meaningful replacement capacity in the form of renewables (e.g. solar and wind)
If OGE’s claim that THE will become the most liquid and attractive market in Europe, therefore facilitating a more successful transit of gas through the grid, this new market could be coming just in time.
The creation of Trading Hub Europe is sure to bring changes on the market. Everything from point count to product type will be affected. With our specialised data platform, my.appygas, you can see the new market area first-hand and view all key considerations for your portfolio.
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Oxford Institute for Energy Studies: European Traded Gas Hubs: German Hubs About to Merge
OGE: Trading Hub Europe: Projektpartner unterzeichnen umfassendes Vertragspaket für das gemeinsame deutsche Marktgebiet Gas
Trading Hub Europe: Information on MBIs and Capacity Buy-back System
GRTgaz Deutschland: News: Market Information on VIP Implementation
GRTgaz Deutschland GmbH: Publication: Market Information on VIP Implementation
GRTgaz Deutschland YouTube: Trading Hub Europe Product Changes
Bloomberg: Gas is so Scarce in Europe that Coal is Making a Comeback