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Copyright Houmoller Consulting © Introduction Anders Plejdrup Houmøller CEO, Houmoller Consulting ApS ðThis PowerPoint presentation is animated üIts recommended to run the animation when viewing the presentation. ðOn most computers, you can start the animation by pressing F5. üNow the presentation moves one step forward, when you press Page Down. It moves one step backward, when you press Page Up. March 10, 20121Anders Plejdrup Houmøller
Copyright Houmoller Consulting © New gas grid fees Improved transparency and competition ðThis document presents a new gas grid capacity fee system. ðIn order to improve the gas markets transparency and competition, the domestic grid fees should be paid directly by the domestic end users üNote: also today, the domestic end users finance the grid by paying grid fees. üHowever, in many countries, the end users currently pay some of the grid fees indirectly via their commercial supplier Which is bad for the transparency and the competition. March 10, 2012Anders Plejdrup Houmøller2
Copyright Houmoller Consulting © Step one: domestic trading of gas – 1 In the first part of the presentation, well only consider domestic trading of gas. On the last slides, well consider cross-border trading of gas. Commercial player B Gas exchange Buy Commercial player A Buy Gas exchange Sell Commercial player C Sell End user Sell Terminology: in this presentation, a commercial player is a player, who buys and sells on the whole-sale market. 3
Copyright Houmoller Consulting © Step one: domestic trading of gas – 2 March 10, 2012Anders Plejdrup Houmøller4 In order to simplify the discussion, well focus on a domestic retailer. Retailer Gas exchange Buy Commercial player A Buy End user Sell Here, domestic means the retailer does not import the gas himself. He buys gas inside the country.
Copyright Houmoller Consulting © Two flows A flow of energy and a flow of money 5 Grid... End Users Retailers Domestic retailers are not involved in the energy flow. Domestic retailers are heavily involved in the flow of money! Money flow Energy flow is created by end users and cross-border traders. Why are domestic retailers paying for capacity they do not use? Hence, they are not users of gas grid capacity. Importers of gas Importers of gas Energy flow
Copyright Houmoller Consulting © Two flows A flow of energy and a flow of money 6 Grid... End Users Retailers Question: apart from such import-export, who is using capacity? Energy flow Money flow So who must pay for capacity? Answer: the end users are the users of capacity. Importers of gas You may import gas here, and export it there. In Out
Copyright Houmoller Consulting © Division of work Between grid companies and commercial players ðThe commercial players set the price for the energy üThe TSO and the distribution grid operators must never set the price for one, single m 3 (or kWh) of gas. ðThe grid companies take care of everything concerning the physical system and the security of supply üThey must ensure there is always sufficient energy & capacity. üA domestic commercial player must never be concerned with the physical state of the gas system. March 10, 20127Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Transparency is required: a firm separation making it absolutely clear what the end user is paying for the commercial and the monopoly service, respectively. The size of the grid payment must not be dependent upon the end users' choice of commercial supplier! End user gas bill Payment for grid (monopoly supplier)EUR XXX Payment for energy (commercial supplier)EUR YYY The transparency and the separation requirements are not met, when the end user indirectly is paying for grid capacity via the commercial suppliers capacity payment. March 10, 20128Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Gas grid tariffs The important criteria are the following ðThe fees must ensure the financing of the grid. ðThe fees must provide transparency üDistinction between monopoly services and commercial services Meaning: clear separation between payment for grid and payment for energy. ðThe fee structure must not impede the competition üFor example: the fee structure must not impede the establishment of new retailers. ðNew tariffs: the burden of paying grid fees should remain unchanged among the end users üFor example: no new distribution of grid fees between peak load users and base load users. March 10, 20129Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Gas grid tariffs With capacity fees paid by the end users Transmission grid Distribution grid The distribution grid owner pays volume fees and capacity fees to the transmission grid owner (TSO) The end user pays volume fees and capacity fees to the distribution grid owner March 10, 201210Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Capacity reservation may create artificial bottlenecks Two domestic retailers A and B Capacity Time Player As consumption Player Bs consumption Total consumption A+B A must book this capacity B must book this capacity Total reservation – much bigger than the total consumption! This slide also illustrates the small, domestic retailers problem: a huge over-reservation per customer (assume A and B are end users) 11
Copyright Houmoller Consulting © Improved competition on the gas market ðCapacity fees paid directly by end users do not discriminate against small retailers. ðBecause: with this system, a domestic retailer needs not reserve grid capacity for his customers. ðThereby, it becomes much easier for new retailers to enter the market üAs this artificial, extra entry barrier is removed. ðAs mentioned earlier: the system used to finance the gas grid must not impede competition. March 10, 201212Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Capacity fees paid by end users: pooling end users capacity utilisation ðWith the new fee system, each end users consumption is in the biggest possible capacity pool üFor the distribution grid, which the end user is using: The end user is in the pool af all users of this distribution grid. üFor the countrys transmission grid: The end user is in the pool of all domestic end users. ðNote: physically, this is always the case üSo the new grid fees reflect how the physical world actually works. March 10, 201213Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Who is paying how big grid fees? The distribution of the grid fees among the end users ðOn the previous slides, its claimed that end user capacity fees can be organised, so the distribution of the grid fees among peak load users and base load users remains the same. ðLets examine the claim: üAssume a domestic retailer wins one, new customer. üWith the current capacity fees: how much will the retailers capacity cost increase? ie, which capacity fee should the retailer charge the new customer? üThe answer is unknown to the retailer! üThe capacity fee charged to the new customer is a choice made by the retailer based on a guess. ðUpshot: actually, the in-transparency of the current grid financing system makes it impossible to verify or reject the claim! 14March 10, 2012Anders Plejdrup Houmøller
Copyright Houmoller Consulting © Introducing new gas grid fees Capacity fees paid by end users ðQuestion: how to introduce the new fees in a way, so the distribution of the grid payment between peak load users and base load users remains the same? ðAnswer: due to the in-transparency of the current system, a TSO introducing the new fees will have to resort to estimates! ðAt least well have full transparency after the shift to the new grid fees üEach end user will know exactly, how much he pays for the grid and how much he pays for the energy. This is no longer based on the retailers guess. March 10, 201215Anders Plejdrup Houmøller
Copyright Houmoller Consulting © ðIt will take a long time before we have market coupling on the gas market. ðTherefore, for cross-border energy trading, well live with capacity tariffs for a long time üAuctioning of cross-border capacity (or the like). ðTherefore, the system presented on the previous slides applies to the domestic gas grid only. ðHence, for the domestic retailer presented in this document: üActually, this is the domestic part of the retailers business. Retailers domestic business (no grid fees) Import and export of gas Retailer Gas exchange Buy Commercial player A End user Sell Buy Retailers import business (capacity fees) 16
Copyright Houmoller Consulting © Thank you for your attention! 17 Anders Plejdrup Houmøller Houmoller Consulting ApS Tel. +45 28 11 23 00 firstname.lastname@example.org Web houmollerconsulting.dk
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