Lecture III: Energy Security of V4 What is Visegrad 4? Energy cooperation of V4 V4 as a litmus test for Internal Energy Market of the EU: Natural Gas Market Electricity Market (Incl. DE and AT) CASE STUDY: Natural Gas Market in V4 – way forward

What is The Visegrad 4 Group? Founded in 15 Feb 1991; CZ-SK, PL, HU Aim? 1) 2) 3)

V4 energy cooperation – regional approach to energy governance V4 as a litmus test for EU energy market: 1)Title XXI/Art194 TFEU: Creation of an internal energy market (IEM) 2) Recomendations from Gas Stress Tests (2014): implementation of PCIs, reveerse flows, max. fuel switch, enhance cooperation (among states, regulators, transmisssion system operators)

V4 energy cooperation – regional approach to energy governance Common challenges: 1)Excessive dependence on a major supplier 2)Buffer zone of EU energy security 3)Restructuring of energy markets 4)Energy efficiency, CO2 emissions

V4 energy cooperation - natural gas market challenges: Dominance of Russian supplies under long term, oil linked contracts; limited interconnection (except between CZ-SK); overwhelming East-West flows; limited internal competition and poor market liquidity; expected increasing demand due to the gradual loss of competitiveness of more polluting fuels; low security of supply standards; regulated market;

V4 energy cooperation - natural gas solutions: PL V4 PRES: V4 Gas Target Model (2013) Infrastructure Projects – incl. X-Border interconnections Implementation of „Network Codes“ Implementation of „EU energy acquis“ – third energy package HOWEVER, limited progress – WHY?

CASE STUDY V4 energy cooperation - natural gas challenges: CASE STUDY For you to identify and propose solutions for: 1)each of the V4 countries 2)V4 group Target: boost energy security

CASE STUDY CASE STUDY: Security of gas supply indicators: Share of natural gas in energy mix Domestic production / export / transit Flexibility of supplies, suppliers – contracts, competition Liquid market (min 20 bcm) based on free market economy Respect for free market rules or regulated market Size and availability of underground gas storage Robustness and interconnectivity of energy infrastructure Daily gas consumption in winter International relations of respective V4 countries

CASE STUDY: V4 infrastructure projects: North-South Gas Corridor.

CASE STUDY CASE STUDY: Security of gas supply indicators - SOLUTION Resources: large role of fossil fuels, nuclear energy in 3 out of 4 V4 countries;

CZ TPES: 40% lignite, 16% gas, 15% nuke, oil 26%, RES 5% Market: 8 bcma Long-term contract with RF till /3 gas on Norwegian contract (till 2016)

HU 8,3 bcma 2bcma domestic production Long term contract with RF expired in 2015 – yet extended till 2018; price 270 USD / mcm

PL 16,7 bcma Domestic production 4,2 bcm 16,7 bcm from RF Number of long-term contracts – longest for 10,5 bcm valid thru 2022 Swinoujscie LNG – regasification unit 5bcma Shale gas? Yamal pipeline capacity 32 bcm

SK 0,2 bcma domestic production 5,3 bcma Capacity of Brotherhood transit pipeline almost 90bcm, yet only 50% utilisation till July 2014

RF pipelines to EU SK – Brotherhood pipeline – capa. 100bcm HU Brotherhood pipeline – capa. 21 bcm PL Yamal pipeline – capa 32 bcm CZ Transit pipeline capa. 50 bcm

CASE STUDY CASE STUDY: Security of gas supply indicators – SOLUTION Contd. Single V4 market requires: 1)National regulators (NRA) and transmission system operators (TSOs) should work to ensure that market rules and procedures are compatible and ensure smooth connection for delivery and distribution of gas (ei. Joint implementation of „European Network Codes“) 2) Dismantle infrastructure bottlenecks 3) Find new sources of natural gas

Challenges of IEM: electricity Background: -Third Energy Package (energy legislation from 2009) for electricity. -MS EU shall implement harmonised rules concerning: (i) network security and reliability, including technical transmission reserve capacity for operational network security, (ii) network connection, (iii) third-party access, (iv) data exchange and settlement, (vi) operational procedures in an emergency, (vii) capacity-allocation and congestion-management, (viii) trading with regard technical and operational provision of network access services and system balancing, (x) balancing, including network-related reserve power, (xi) harmonised transmission tariff structures including locational signals and inter-transmission system operator compensation, (xii) energy efficiency regarding electricity networks

Electricity – main interconnection bottlenecks: Interconnection of the Baltic States as a whole with other EU countries. Interconnection capacity of Great Britain and Ireland to mainland Europe. (Which country will they be interconnected to is a secondary, although important, issue). Interconnection of Italy and its northern neighbours. Interconnection of the Iberian Peninsula with mainland Europe.

Challenges of IEM: electricity By 2015 all the electricity markets were supposed to be interconnected in the EU… Why not? What are the challenges?

Challenges of IEM – example of AT-DE market zone versus 4M regional market – LOOP FLOWS

4 M Since its launching in September 2012, the market coupling of Czech, Slovak and Hungarian day-ahead electricity markets (so called CZ-SK-HU Market Coupling) has proved positive benefits for market participants. Romania and Poland therefore decided to join this trilateral project with the aim to enjoy benefits of the integration and to contribute to the development of the European electricity market. The coupling of national electricity markets on the basis of the Target Model – so called Single Price Market Coupling for day- ahead market with electricity and the implicit allocation of cross-border capacities – should ensure a harmonised approach to the market organisation and a more efficient use of cross-border transmission capacities, increase competition on the markets and contribute to the stabilisation and convergence of wholesale electricity prices as well as increase in the market liquidity. Czech Republic, Slovakia, Hungary, Poland and Romania signed on 11 July 2013 the Memorandum of Understanding on cooperation with respect to Romania’s and Poland’s adhesion to the integrated day-ahead electricity markets of the Czech Republic, Slovakia and Hungary.

AT-DE market zone Since 2002 Electricity traded in Germany for Austria flows through transmission systems of Poland and the Czech Republic Problem?: traded volumes of electricity between Germany and Austria regularly exceed the physical capacities at the border

Development of RES in Germany

„Loop Flows“ : Threat to operational security and reliability of electricity supply

„Loop Flows“ (Contd.)

Loop Flows solution: DE and CZ decided to build four „phase shifting transformers“ at their borders with Germany that can block unwanted currents Closer of further from the European Energy Market?

Phase shifting transformer - Siemens