In­cre­men­tal capacity – mar­ket-based pro­cess for cre­at­ing ad­di­tion­al gas trans­port capacity

• Sequence of the incremental capacity process (2019-2021)
  • 1. Demand assessment
  • 2. Design and approval
  • 3. Auction and market testing
• Points of contact

The EU Regulation (EU) 2017/459 establishing a network code on capacity allocation mechanisms in gas transmission systems (Network Code on Capacity Allocation Mechanisms – NC CAM) of 16 March 2017 provides for an incremental capacity process to assess the market demand for additional gas transport capacity at cross-border and market area interconnection points and if necessary to create such capacity (Articles 22 to 31 NC CAM).

The results of the process serve as a sound basis for determination of the demand for network expansion from the transmission system operators (TSOs) and for the Bundesnetzagentur to examine the gas network development plan.

Sequence of the incremental capacity process (2019-2021)

In simplified form, the process can be divided into three phases:

1. Demand assessment

The beginning of the process is the annual yearly capacity auction in each odd-numbered year. Network users can submit non-binding indications of demand for gas transport capacity at entry-exit system borders to the TSOs. The TSOs must assess these demand indications as part of a demand assessment that normally takes place every two years. No later than eight weeks after the start of the annual yearly capacity auction, the concerned TSOs must produce common market demand assessment reports. (Article 26 NC CAM)

The deadline for the publication of reports on the market demand assessment on the basis of the non-binding demand indications received during the ongoing process ends on 21 October 2019, 16 weeks after the start of the annual yearly capacity auction. The reports will be published on the website of the FNB Gas association. (Article 26 NC CAM)

2. Design and approval

If it has been established in the report on the market demand assessment that there is demand for incremental gas transport capacity and this demand cannot be met by the existing gas transport capacity, the TSOs begin the design phase (Article 27 NC CAM).

This phase includes

• the modelling and design of any network expansion that may be necessary, in technical studies
• public consultation of TSOs' technical studies
• coordination with and approval by the responsible regulatory authorities
  

The German TSO will reschedule the publication and therefore the consultation of the preliminary project proposal in the ongoing incremental capacity cycle to be published in August 2020. The high number of requests for incremental capacity trigger a wide range of modelling scenarios which require additional time for developing. Based on these modelling scenarios technical studies are compiled which determine reliable statements concerning costs and time schedules amongst others for the according projects.
Although the project proposals will be published and consulted later the overall time schedule for the incremental capacity cycle 2019 – 2021 remains and will conclude with the auctioning of incremental capacity in July 2021.

According to Article 28 NC CAM, the TSOs involved submit the project proposal to the regulatory authorities for coordinated approval.

The approval essentially covers

• the design of the project and any need for network expansion
• the economic test parameters (offer levels)
• details of the capacity allocation

3. Auction and market testing

Once approval has been granted by the relevant regulatory authority, the new gas transport capacity is offered to the market participants for binding booking together with any existing capacity.

In accordance with the determination issued by Ruling Chamber 9 on 19 July 2017 (BK9-17/609) on Provisions on implementing the network code on harmonised transmission tariff structures for gas, the Bundesnetzagentur is responsible for carrying out the economic test for each offer level of an incremental capacity project pursuant to Article 22 of Regulation (EU) 2017/459 for the TSOs concerned immediately after the end of the annual yearly capacity auction. The TSOs must be informed in writing about the results of the binding bookings and thus the economic test. In coordination with the foreign TSOs, they are required to determine whether sufficient capacity has been booked for the cross-border project to result in a positive economic test outcome on both sides

In this context, the Bundesnetzagentur would like to stress that the abovementioned determination does not cover the publication of whether the conditions for a repeated auction pursuant to Article 29(3) of Regulation (EU) 2017/459 are met or of the results of the economic test pursuant to Article 11(10) second and third sentence of Regulation (EU) 2017/459. The TSOs are still responsible for making this information available.

Article 27(3) of Regulation (EU) 2017/459 lays down that a consultation covering cost estimates and the f factor must be conducted in the design phase. The Bundesnetzagentur therefore developed the methodology for the calculation of the economic test together with the TSOs and transferred it to a calculation tool that can be downloaded here:

Results of the economic test

If the outcome of the economic test is positive – in other words sufficient binding capacity is booked on both sides of the market area border to cover the specified proportion of investment costs – the gas transport capacity must be created by the TSOs concerned. The project will then be included as appropriate in the network development plan, at the size confirmed by the market. This information will be published shortly after the annual auction on the website of the FNB Gas association.

Points of contact

The relevant regulatory authorities publish the respective points of contact for incremental capacity projects (Article 26(14) NC CAM).

The respective points of contact for possible future projects can be found in the market demand reports that the German TSOs have published on their website. Further information about future incremental capacity projects, existing deadlines and points of contact can likewise be found there.