1. 4 th SAP Meeting, GRI SSE Milano, 4 May 2011 GRI South South-East Region

2. 2 4 th SAP Meeting, Milan, 4 May 2011 Agenda Agenda TopicsRapporteur Arrival and registration 1. EU Gas Target Model and SSE regionCo-chairs 2. Future role of the Regional InitiativesCo-chairs 3. Energy Work Plan 2012-2014SAP 4. AoBCo-chairs

3. 3 4 th SAP Meeting, Milan, 4 May 2011 1. EU Gas Target Model and SSE region

4. 4 4 th SAP Meeting, Milan, 4 May 2011 Internal EU gas market What do we want to achieve? Internal EU gas market How we want to achieve this? First we need to enable functioning wholesale markets (“markets”), where they do not exist yet. As second step we need to connect these markets better to move forward to an integrated market. Basic conditions need to be established in all countries No one size fits all solution possible

5. 5 4 th SAP Meeting, Milan, 4 May 2011 Overview of the MECO-S model for EU gas market integration Improve effectiveness by realizing economic pipeline investments MECO-S Model Pillar 1: Enable functioning wholesale markets Pillar 2: Tightly connect markets Pillar 3: Enable secure supply patterns Pillar 1: Structuring network access to the European gas grid in a way that enables functioning wholesale markets so that every European final customer is easily accessible from such a market. Pillar 2: Fostering short- and mid-term price alignment between the functioning wholesale markets by tightly connecting the markets through facilitating cross-market supply and trading and potentially implementing market coupling as far as the (at any time) given infrastructure allows. Pillar 3: Enabling the establishment of secure supply patterns to the functioning wholesale markets. Foundation: Improving the effectiveness of pillars 1 to 3 by making sure that economic investments in pipelines are realized.

6. 6 4 th SAP Meeting, Milan, 4 May 2011 Where do we have functioning wholesale markets yet? Depending on the definition applied between 1 and 5 functioning gas markets exist in Europe today! Shall we strive to create 25 functioning gas markets? Will this foster competition in the retail markets? Would the German gas market have developed the same if we had not reduced the number of zones (~20) by merging them? Would the French gas market have developed the same if we had not reduced the number of zones (5) by merging them? Can markets be enabled without liquidity only via better connection?

7. 7 4 th SAP Meeting, Milan, 4 May 2011 How to enable functioning wholesale markets? Different pictures all over Europe call for different approaches which are not mutually exclusive If a country is capable of establishing a functioning market itself the establishment of one (or two, based on C/B analysis) zone within this country is important (e.g. GB, Germany, France, Spain) If a country is not capable of establishing a functioning market itself (e.g. due to lack of liquidity or size) Cross-border market areas (full merger) is one solution, or Accession to a larger, already functioning market, or Trading Regions - a single cross-border zone for wholesale markets with congestion-free interconnection to national end- user zones.

8. 8 4 th SAP Meeting, Milan, 4 May 2011 The Market Area Model Features: One virtual point for wholesale trading Fully integrated wholesale market One balancing zone from import points to final customers Full integration of DSO networks Single set of balancing rules Single balancing entity Symbols Virtual point of the market area serving as the sole marketplace of the market area Entry or exit contract Exit contract Market Area A Country A Country B Market Area AB Cross- border market area National market area VP Final customers (A)Final customers (B) VP Final customers (A) VP

9. 9 4 th SAP Meeting, Milan, 4 May 2011 The Trading Region Model Country ACountry B Trading Region AB End user zone A End user zone B Final customers (A)Final customers (B) VP Legend and Symbols End user zone = National balancing zone for national final customers, no matter the system (distribution or transmission) they are connected to Trading Region AB = Cross-border entry/exit system including all nominated points on the transmission systems of countries A and B Entry or exit contract Exit contract Virtual point of the trading region serving as the sole marketplace of the trading region and all attached end user zones. Shifting of gas between trading region and end user zone is done by nominating a virtual exit on the VP. VP Features: One virtual point for wholesale trading Fully integrated wholesale market Trading region is basically kept free of imbalances Final customers are balanced in national end user zones that may reflect national specifics End user balancing may be done by national balancing entity Congestion-free interconnection between trading region and end user zones through the common virtual point (  virtual exit to end user zone)

10. 10 4 th SAP Meeting, Milan, 4 May 2011 What needs to be done in all approaches? Prerequisite for merging market areas and creating trading regions: Absence or at least limited physical congestion As soon as we are talking about cross-border integration the following issues have to be analysed Entry / Exit Tariffication Redistribution of revenues and costs Alignment of regulatory framework Investments TSO as well as NRA cooperation

11. 11 4 th SAP Meeting, Milan, 4 May 2011 MECO-S Model: Architecture at Large Legend and Symbols Hub to Hub capacity product and potentially market coupling Virtual point. VP Country ECountry F Trading Region EF End user zone EEnd user zone F Country CCountry D Market Area CD Market Area A Country A Market Area B Country B VP

12. 12 4 th SAP Meeting, Milan, 4 May 2011 Common position of European gas industry associations on multi-system operation of TSOs

13. 13 4 th SAP Meeting, Milan, 4 May 2011 The second step: connecting markets Connecting markets means price alignment between functioning markets and thereby driving market efficiency and public welfare on a European scale Connecting markets can happen at different timescales. In the afternoon session we will discuss a measure for short-term trading.

14. 14 4 th SAP Meeting, Milan, 4 May 2011 2. Future role of the Regional Initiatives

15. 15 4 th SAP Meeting, Milan, 4 May 2011 2. Tasks of the Regional Initiatives Majority of the respondents are in favour of the tasks proposed by the Commission (early) implementation of Network Codes Infrastructure development Test bed for new ideas Better alignment with follow-up to Infrastructure Package and Security of Supply Regulation is needed Doubts on market coupling as part of target model – more analysis needed

16. 16 4 th SAP Meeting, Milan, 4 May 2011 2. Composition of the Regional Initiatives Most of respondents favour flexibility - no need for a legislative initiative Mixed views on the proposal to include Italy in the South Region Mixed views on the proposal to split the South-South East Region. More focussed agenda needed versus fear that split might be counterproductive in terms of efficiency. Coherence with infrastructure package needed Mixed views on overlapping countries

17. 17 4 th SAP Meeting, Milan, 4 May 2011 2. Possible way forward for more consistency with infrastructure development regions BEMIP NORTH SOUTH Cooperation with Energy Community Cooperation with Norway

18. 18 4 th SAP Meeting, Milan, 4 May 2011 2. Possible Way Forward on South Region(s) SOUTH WESTSOUTH EAST Potential merger once FR-SP interconnector is operational + cooperation with Switzerland

19. 19 4 th SAP Meeting, Milan, 4 May 2011 2. Governance of the RIs Large support for stronger involvement of Member States Industry regulator dialog should remain driving axe Added value of Regional Steering Committee is questioned ; structures should remain lean and effective Stakeholders, including ENTSO-G, to be involved in decision making and not only in information sessions of stakeholder group Support for increased involvement of Commission and ACER Support for mandatory presentation of work plan to ACER

20. 20 4 th SAP Meeting, Milan, 4 May 2011 2. Possible way forward for Governance Regional Coordination Committee Presidency: designated NRA or Commission NRAs ACER Commission Representative ENTSOG Representative Eurogas At least one meeting per year with Member States Stakeholder Group Implementation Group Ad hoc composition

21. 21 4 th SAP Meeting, Milan, 4 May 2011 2. Preliminary conclusions Request to existing GRIs to send work program 2012- 2014 to ACER and Commission by September Commission could envisage to draft by end of the year interpretative note clarifying role and responsibilities of RIs, including governance and composition

22. 22 4 th SAP Meeting, Milan, 4 May 2011 2. Summary of Coordination meeting with ACER The elaboration of concrete, ambitious, realistic and consistent roadmaps should be our top-priority for the next 2 months Their endorsement by all stakeholders, including MS, is essential More focused on projects than on regions When relevant, designation of a NRA to lead and report on each identified project should be promoted Close monitoring, transparency and effectiveness should be continuously looking for in order to maintain stakeholders' confidence

23. 23 4 th SAP Meeting, Milan, 4 May 2011 3. Energy Work Plan 2012-2014 Energy Council on February 4 th: “we will have achieved an IEM by 2014” Coordination meeting by Lead Regulators of ERI and GRI with ACER European Commission requested a 3 year Road Map (The Energy Work Plan) aimed at achieving an IEM by 2014

24. 24 4 th SAP Meeting, Milan, 4 May 2011 3. Energy Work Plan 2012-2014 1.Enabling functioning Wholesale Markets 2.Connecting Wholesale Markets 3.Enable secure supply patterns 4.Action Points and Pilot Projects The presented topics will be forwarded to ACER and the European Commission who then will combine the Work Plans from all regions in order to gather an overview of the pan-European Status-quo and to create an outlook for the next 3 years.

25. 25 4 th SAP Meeting, Milan, 4 May 2011 3. Energy Work Plan 2012-2014 Questions to SAP 1.Is it realistic to have one fully integrated market area? 2.In which MS of the region a fully functioning wholesale market can be established by 2014? 3.Alternatively, with which MS a closer integration would be necessary to achieve a functioning wholesale market by 2014? What will be the impact of merging market areas (eliminating capacity booking on some IPs)? 4.Which pilot projects to start with in order to establish this closer integration?

26. 26 4 th SAP Meeting, Milan, 4 May 2011 3. Energy Work Plan 2012-2014 Questions to regulators 5.Who is involved in the project? 6.Is the regulator taking the lead in this project? Questions collected right here and in written Communication – then a draft European Work Plan will be circulated in order to present it to the EC by end of June

27. 27 4 th SAP Meeting, Milan, 4 May 2011 3. Energy Work Plan 2012-2014 Action Points and Pilot Projects GRI-SSE-AP-1: Trading Points GRI-SSE-AP-2: Improvement of Hub-to-Hub Trading GRI-SSE-AP-3: Implementation of OBAs at IPs GRI-SSE-AP-4: Reverse Flow Investments GRI-SSE-AP-5: MS’ improvement of Regional Solidarity GRI-SSE-AP-6: TSO Regional 10 Year Network Development Plan (2012)

28. 28 4 th SAP Meeting, Milan, 4 May 2011 4. AoB Probably – SoS meeting, beginning of December (one year after SoS Regulation) Polish Network Grid

29. 29 4 th SAP Meeting, Milan, 4 May 2011 Closure Thank you very much!

30. 30 4 th SAP Meeting, Milan, 4 May 2011 Michael Schmöltzer Head of Gas Department E-Control Austria +43(0)1 – 24 7 24 / 801 Michael.Schmoeltzer@e-control.at www.e-control.at www.ceer.org Contact