Reform of the Finnish Natural Gas Market Act Vaasa Energy Week - 16 March 2016 Elina Hautakangas

Transcription

1 Reform of the Finnish Natural Gas Market Act Vaasa Energy Week - 16 March 2016 Elina Hautakangas

2 Content > Background and Key Proposals > First-phase Amendments > Competitive Market Second-phase Amendments > Process 2

3 Background and Key Proposals

4 Finnish Gas Markets > Finland has a derogation from the obligation to liberalise the natural gas market > Markets have not been open for competition Pipeline gas nor LNG has access to the Finnish Gas Network Biogas has access to network in principle > Transmission network and gas sales are not unbundled > Gas prices and conditions are regulated > Structure for competitive market and market places are missing 4

5 Objectives and Need for Change > Declining competiveness of pipeline gas in the energy markets Especially in the energy production, gas and other fuels compete Consumption of gas has declined by a third in the last ten years > Creating the conditions for development of LNG infrastructure and biogas > Creating the conditions for Finland to participate in the common European natural gas market Connecting Finland to the Baltic states and to the Central European gas infrastructure > Creating conditions for diversification of purchase of natural gas > Governmental program calls for: Measures for strengthening competition and better regulation 5

6 Natural Gas Consumption in Finland TWh Gas consumption has steeply declined in the current market situation. Year 2015 was even worse. Source: Statistics Finland 6

7 Market Structure and Market Participants > Gasum is the sole importer, TSO and wholesale trader in Finland > 23 DSOs The sole seller of gas in the distribution network Network operations and trading are unbundled in accounting > Secondary trading in Finnish Gas Exchange 5 milj. m3 consumption limit to participate > No explicit balance management procedures: Open deliveries by Gasum at TSO level and each DSO retailer in its own DSO network Balance gas price Imported Gas 99.9 % Biogas 0.1 % 23 DSOs trading DSO-level end-users (Consumer and small-scale business) TSO wholesale market Gas Exchange TSO-level endusers Source: Energy Authority, Finnish Gas Association 7

8 Developing the natural gas markets > The Balticconnector pipeline between Finland and the Baltics is a prerequisite for liberalising the Finnish gas markets Future developments and the role of natural gas in energy policy are dependent on the project > If Balticconnector is built: Finland becomes a part of the European gas markets Finnish gas market will be opened for competition > In case the Balticconnector pipeline is not built: The Finnish market is developed from the national standpoint without a connection to the European markets Finnish gas supply remains largely based on Russian imports Future LNG-terminals and the increased biogas production creates competition towards pipeline gas and enhances security of supply for gas Source: Ministry of Employment and the Economy 8

9 Key Proposals > Finland to give the derogation from the Third Energy Market Package around year 2020 > Prerequisite: 1) Provided that the Balticconnector and the GIPL Cable between Poland and Lithuania is built; OR 2) Competing gas sources would reach a market share of 25 percent > A separate Act to implement certain part of the proposal is needed > Target Finnish gas market will be fully opened to competition Transmission network will be fully unbundled (TSO/ISO/ITO) Price regulation of the wholesale market gas will be abolished Price regulation on the distribution level will be districted to sites not exceeding 250 KW (= private households or sites of corresponding size) Internal market rules and market place to be put in place (fully, when the derogation expires) Regulatory and operational conditions for access and regulated tariffs Objective to decrease the level of regulation on gas supply and distribution networks 9

10 First-phase Amendements

11 Key Proposals > Proposal for interim arrangements to gradually liberalise the market Structural and functional changes for the view of market opening > TPA, to LNG-terminals and to gas pipelines (obligation to transmit) starting January 2018 Third party access for biogas already in the current legislation TSO will continue to be the sole importer of the Russian gas to Finland > Enabling competition between retail market traders > Legal unbundling of the TSO s system operation Different organisation for transmission, system services and sales of gas as well as separate IT systems within the organisation > Interim period intended for the period between Will be the long-term solution in case the Balticconnector is not built 11

12 General Requirements > Functional changes Obligation to transmit i.e. third party access for all gas with the exemption of gas imported from Russia Possibility to freely trade gas in gas exchange and bilaterally Retail markets Possibility to change supplier > Setting up structures for free competitive markets Unbundling of gas requires exchange of information between market participants Entry-exit system Gas exchange > Balancing Balancing the system and balance settlement services More market orientated approach > Supervision NRA to set the tariff methodologies for networks For LNG, the NRA confirms the tariffs and the access conditions Storage has a negotiated TPA, if introduced 12

13 Transmission System Regulation 1/2 > TSO unbundling during the interim period Idea to move towards the concept of an independent network operator > Legal unbundling of system operations System operation tasks in a separate legally unbundled company Owned by Gasum Gas supply and the ownership of transmission pipelines could remain in the same company Chinese walls between transmission and supply operations Separate energy management systems or interfaces 13

14 Transmission System Regulation 2/2 > Obligation to transmit i.e prerequisite for third party access Metering of gas entry and exit as prerequisite Eligible customer is purchasing or selling gas Transferred by Gasum from Russia to be used in Finland Transferred to Finland to be sold within the EU/EEC Originating from LNG-terminals or renewable sources > Obligation to supply Wholesale suppliers obligation to be reduced Now the scope is all customers Obligation would only apply to wholesaler s supply of gas originated from Russia to the retailers to be supplied on retail level NRA would no longer supervise the reasonable profit set for the gas supply on wholesale market level Focus on suppliers having significant market power according to Competition Act > Network license System responsible TSO needs to apply for the renewed license by 31 December

15 Obligation to Transmit > Obligation to transmit ensures an effective access to network > Scope broadens as of January 2018 Gas transported via LNG terminals All secondary market gas Annual demand for five million square meter usage of secondary market gas to be removed A smart meter with a remote reading possibility as a prerequisite for TPA Gas coming from renewable energy sources as before 15

16 Distribution Network Regulation 1/2 > Closed distribution network New network type to Finnish legislation Combines the current requirements to exempt from the Finnish Natural Gas Market Act; AND Requirements of the Gas Market Directive Reduced requirements for industrial, commercial or shared services site, which does not supply household customers Exemption from requirements to confirm the tariff methodologies ex ante > The possibility for current derogation to carry out operation without a license is removed Currently the legislation is not applicable to the internal distribution of natural gas of a real estate or a corresponding group of real estates Possibility to carry out operation without a license is no longer possible The ECJ stated in the Citiworks case that a third party access is required also in regards to distribution of natural gas of a real estate Contractual arrangements can be done to derogate from the possibility for third party access 16

17 Distribution Network Regulation 2/2 > Unbundling of distribution network operators Unbundling of accounts Directive gives the possibility to derogate from the legal and functional unbundling requirements, in case the DSO has less than customers All current gas distribution networks in Finland serve less than connected customers and therefore no stricter requirements in the national legislation > Obligation to transmit Obligation towards eligible customers > Obligation to supply Threshold of 250 kw connection End-users using less are protected Mainly consumers using gas for heating purposes Other end-user i.e. small business Applies to all end-users of gas whether or not they purchase gas from the DSO or from other suppliers 17

18 Access to LNG-terminals > Obligation to transmit Along with biogas, LNG-terminals are granted a third party access > Right to access the terminal Energy Authority confirms the tariffs and the access conditions Principles for capacity pricing need to be published Capacity rights to be distributed on a non-discriminatory basis Operator cannot even partly reserve capacity for its own use, but all capacity is to be distributed using the same methodology > Off grid LNG-terminals are also in the scope of the Finnish legislation State aid regulation underlines the importance of the tariff based open access principle Easier to regulate different types of terminals and process the applications for state aid LNG-terminal project developers are expected to apply for grants either nationally or from the European Union funds > Special features of the LNG-terminals Some of the obligations such as the obligation to disclose information are out of scope 18

19 Consumer Contracts > Changes in Finnish Natural Gas Market Act (NMA) Best practices of the Finnish Gas Association incorporated to legislation More clarity the obligations harmonised with the Electricity Market Act Chapter 14 of NMA includes inter alia the following Provisions related to network connections, distribution and purchase contracts Conclusion, change and termination of contract Suspension to supply and to distribute Standard compensation due to delay and compensation for damage due to such delay Fault and price reduction and compensation for damage due to a fault > Natural gas consumers in Finland 2013 Milj. m3 Households, gas stoves 1 0,03 % One-family houses 12 0,36 % Terraced houses & flats 22 0,67 % Traffic, Industry and power stations ,94 % Total % Single household consumers form an estimated 0,4% of the number mentioned above Freedom to change supplier and make contracts considered a good principle also in the future 19

20 Competitive Market Second-phase Amendments

21 General Requirements > Obligation to transmit for eligible customer (TPA =Third Party Access) Scope for eligible customers All customers are eligible as set in the Directive Repealing transitional provisions regarding the eligibility > Requirements for competitive market structure TSO Unbundling (Gasum) Entry-exit system Tariff based on entry-exit system requirements Market place for gas and capacity Balancing market Balance settlement Created mostly with the interim solutions and requires TSO s energy management system for data exchange 21

22 Role of market actors on a competitive market Source: Pöyry 22

23 Entry-exit system and its the implication to the market Trades and transfers made and settled on Virtual Trading Point Currently the Baltic Gas Coordination Group is looking into ways to facilitate cooperation and coordination between the neighboring countries Source: Pöyry 23

24 TSO unbundling > A separate piece of legislation regarding the TSO unbundling drafted > Scope: transmission system operators owning or managing transmission pipelines in Finland > TSO/ISO/ITO models 1. Ownership unbundling (TSO-model), in which the producers and suppliers let go all control and rights towards the company Means giving up all right with the exception to accept dividends from the transmission system operator For a vertically integrated company means in practice giving up its shares. 2. Independent system operator (ISO-model), in which the transmission network operation is transferred to a separate operator making all decisions including the investment decisions Producers and suppliers role is as ownership of the possibility to maintain ownership of the network and fund the investments No right to participate in the network operation or decision-making related to the investments 3. Independent transmission operator (ITO-model), in which the ownership of the transmission network remains with the producers and suppliers in part of completely Owners have the right to use limited control in relation to the value of the investment Producers and suppliers are not allowed to take part in the every day business decisions of the TSO Important decisions related such as investment plans need to be approved by the national regulatory authority 24

25 Process

26 Further Actions > The Ministry accepted comments on the proposal until 7th March > Finishing of the government proposal in view of the comments and further developments on the market > The government proposal shall proceed to the parliament during the spring 2016 The Ministry is considering either to wait or the Commission s Decision on CEF-funding, which is still in the process > Renewed Gas Market Act should enter force in the beginning of 2017 > Exemptions regarding the transmission and distribution of gas > A separate implementing act in regards unbundling and lifting the exemption regarding transmission and distribution of gas > 26

27 Thank you! Image here Elina Hautakangas Counsel Energy Tel: elina.hautakangas@hannessnellman.com 27

28 HELSINKI Hannes Snellman Attorneys Ltd Eteläesplanadi 20 / P.O.Box / Helsinki, Finland Tel: Fax: mikko.heinonen@hannessnellman.com STOCKHOLM Hannes Snellman Attorneys Ltd Kungsträdgårdsgatan 20 / P.O. Box / Stockholm, Sweden Tel: Fax: richard.akerman@hannessnellman.com MOSCOW Hannes Snellman LLC 7 Gasheka St Moscow, Russian Federation Tel: Fax: victoria.goldman@hannessnellman.com ST. PETERSBURG Hannes Snellman LLC 62 Nevsky Pr St. Petersburg, Russian Federation Tel: Fax: victoria.goldman@hannessnellman.com