ENTSOG takes on new challenges: interview
The European Network of Transmission System Operators for Gas (ENTSOG) has co-ordinated its members's activities and negotiated terms and assessed the need for public funding for possible infrastructure projects with the European Commission (EC).
The result is a competitive gas market with a transparent, regulated third-party access regime governed by a set of network codes covering congestion management, capacity allocation, tariff-setting and so on. This in turn has helped make the EU an ideal market for LNG: one that is deep, liquid and open to all participants. This also furthers the objective of the EU: security of supply.
ENTSOG’s general director Jan Ingwersen, seconded from Danish grid operator Energinet, told NGW in an interview that his organisation's work can be seen as a success story: the EU energy regulator ACER reports that prices have converged closely at hubs across Europe. This implies that opportunities for arbitrage and market exploitation are becoming smaller.
Before the third gas package of 2008, bundled companies had been able to block their rivals’ access to industrial users and so retain their monopoly of a major trunkline with demarcation agreements carving out areas for exclusive supply. All that had to go. The third package, backed up by the well-equipped EU Competition Directorate, was the instrument to do it, overcoming resistance in some countries later than in others. The following year, ENTSOG was born with market development and infrastructure that made supply more secure being among its objectives.
Included in its remit is the compilation of Ten-Year Network Development Plans (TYNDP), which it publishes once every two years. They include projects whose benefits should over time outweigh the cost of public funding, in which case they may be designated projects of common interest. These benefits include supply diversification. Given political tensions with Russia, many of them include alternative delivery routes for gas.
As a result of these efforts, Ingwersen told NGW, "EU infrastructure is already robust and resilient. There are just a few projects needed to complete the security of supply objective. Yes, there is redundancy; but that can be explained by security of supply issues. That is a regulatory requirement [the N-1 rule] for governments to be able to meet their national gas demand if their biggest single supplier should fail. And that redundancy will come in handy with the third pillar: sustainability. Converting natural gas pipelines to carry hydrogen, CO2 etc will require redundancy – these pipelines will no longer be available for carrying gas. But this conversion will be a gradual process."
Operational changes, the shift from oil indexed long-term contracts, pipeline capacity bulletin boards and the creation of virtual reverse flow in many other cross-border points have also overcome barriers to free trade. Trading hubs have sprung up, exposing the higher-priced markets and creating new flow patterns. And taking advantage of the greater transparency are new companies like Route4Gas, whose trading platforms and algorithms bring together capacity-holders and shippers in a way that earns or saves money for all three parties.
Gas versus power
“Sustainable energy” used to mean “cleaner than coal” -- which gas is. But definitions have moved on since then. While many European countries still rely heavily on coal and lignite for power generation, the obvious cleaner substitute, natural gas, is facing headwinds. Not many gas-fired plants will be eligible for EU financing, under the Green Deal, as most will be in breach of the stringent emissions requirements.
Electrons however are given a free pass, regardless of the life-cycle emissions that the manufacture of battery-powered electric vehicles produce, for example. And renewable electricity is given automatic access to the grid while not covering any of the costs other generators incur through lower running times and mechanical fatigue.
As more dispatchable power comes off the grid, these problems are likely to get worse: for instance in Germany which is phasing out its nuclear capacity in the next few years and has already begun phasing out coal and lignite.
Ingwersen said: “We do detect a certain bias against the gas TYNDP on the grounds that it is a fossil fuel/not “green” electrons. However, molecules and electrons will both be needed in the future. Gas will be needed to cover the intermittency of wind and solar – and gas will be gradually decarbonised and/or substituted by hydrogen.”
A number of ENTSOG member companies are involved in the European Hydrogen Backbone project which seeks to repurpose some pipelines for hydrogen as well as build pipelines specifically for carrying hydrogen. Overall this could reach a length of 40,000 km, based on the 14 members’ plans as of April. Of that, 30% would be new and the total cost would be around €60bn, plus or minus €20bn.
ENTSOG argued in mid-March that its members’ activities make them ideally qualified to own both kinds of network. And new roles such as gas quality management and conversion services will need to be established to support the growing integration of gas and hydrogen pipeline systems. Applying principles such as unbundling and nondiscriminatory third-party access “clearly makes sense because the future hydrogen network is anticipated to share the same basic attributes as the gas network,” it said in a position paper on the proposal to revise the third energy package to include hydrogen.
Ingwersen said: “The TYNDPs come out every second year and they have so far had two objectives: to ensure security of supply and to ensure market development. TYNDP 2020, due to be published shortly, included for the first time Energy Transition Projects. The coming one TYNDP 2022, which we are now working on, will include hydrogen transport for the first time.
“Our next TYNDP will cover biomethane, hydrogen and look into CO2 transportation as well. The regulatory framework for these new roles have not been carved out, but we find it important to include this already now. The TEN-E regulation, which will address that framework, is being revised now and we welcome that.
Along with ENTSOG, a counterpart was created for the power sector: ENTSOE, and the two are now working together in a limited way initially.
“We should further strengthen the co-operation between ENTSOG and ENTSOE to facilitate energy system integration. Furthermore, the full gas and hydrogen value chain should be aligned to ensure the transition of all the elements of energy production, transport, storage and consumption, as well as the turbine and boiler manufacturers. This requires full alignment on the technical specifications also for handling both hydrogen, gas and blends. An ENTSOG ‘prime mover’ group involving 40 entities has been set up to work on this value chain transition because as well as the physical side and commercial/financial side need also to be in place for all the players.
“The scope of the work ahead for our members will be challenging and not yet covered fully by the regulation. But we have handled transition of the systems before: We went first from town gas to low calorific gas and then to high calorific gas from Norway and Russia.
“We are considering both pure hydrogen transport as well as blending hydrogen with methane and biomethane in order to have efficient utilisation of the systems. The gas will have different characteristics in the future – a feature that the TSOs should be able to handle.
“A lot of the decarbonising schemes – such as hydrogen generation, transport and consumption – will happen at distribution system operator (DSO) level. There will need to be an interface between the DSOs and TSOs, to avoid local monopolies; and to ensure security of supply. We see this happening both in a virtual way – guarantees of origin can make it possible to trade biogas or hydrogen certificates across distribution areas – as well as in a physical way. Gas flows have to be interchangeable, somehow. Some stakeholders say that only green gases should be carried in gas infrastructure. While we welcome this development of green gases, we don’t think that there will be enough green gas to meet all gas demand," he said.
“For TYNDP 2020, we have been working with ENTSOE on three scenarios. The first is based on national policies: National Energy and Climate Plans which each member develops, and the scenario covers the period from 2030 up to at least 2040. The second looks at the transition focused on local / national level, the relationship between the local distribution network-based energy producer and the DSOs and TSOs; and the third looks at transition focused on a European / international level and energy imports from outside the EU. These two are Paris Agreement-compliant, looking at pathways up to 2050.”
“An additional joint work is the TYNDP Interlinked Model, where gas may be used to alleviate the challenges/costs of delivering electrons or vice versa. Finding the synergies is a very complex exercise as it involves the [sometime conflicting] interests. This is expected to be addressed in the upcoming Hydrogen and Decarbonised Gas Market Package.
“There are obvious synergies to obtained by energy system integration, where investments in one sector yields benefits/efficiencies in another sector. But we do need to address the issue on how to handle this in relation the principles of non-cross-subsidisation in order to materialise these synergies," he said.
Disagreement with ACER
ACER took exception to the ENTSOG’s mandatory ten-year network development plan (TYNDP) in May, saying it fell short of the standards expected.
Liquefaction terminals, pipelines and other infrastructure that hope to become EU PCIs and hence qualify for public funding have to be included in the latest TYNDP.
ACER said there were "too many" conventional gas projects, worth close to €75bn ($90bn), in the draft gas plan. This amount does not fit well with Europe's decarbonisation objectives.” And "despite ongoing efforts, the TYNDP framework still fails to properly assess the contribution of gas projects to sustainability."
Ingwersen said: “We find ACER’s position [in its press release] incorrect and also biased. ACER’s job is to perform the regulatory oversight and the EC’s to do the policy oversight, but we see ACER aiming to expand its powers into policy areas with its comments on the work we have done. The press release that ACER published together with their opinion on our TYNDP 2020 was targeted at discrediting ENTSOG’s work – while the opinion in itself is much more balanced.
“The ‘excessive’ €75bn figure that ACER cited is the gross total of all gas projects that project promoters are working on. Some of these can be mutually exclusive: for example an interconnector might compete with an LNG terminal. And our conclusion in TYNDP 2020 is that the EU gas system is robust and resilient, and we are not identifying a big need for investments in new traditional gas infrastructure. And the question on potential EU support for projects – the PCI process – is in the hands of the EC and Parliament along with the member states.
“ACER is apparently mixing up the TYNDP task to bring an overview of all infrastructure projects with the PCI task to identify which projects should have EU support. ENTSOG produces the technical overview and the cost-benefit analyses - but we do not recommend PCI projects," he concluded.