TSO Models Take to the European Stage

Leaders from different TSOs taking to the stage showing which model rang true could have been dubbed "European Pipe Idol" quipped Dr. Colin Lyle, Managing Director, Gas Market Insights, who moderated the session entitled What is the Best TSO Model for Europe? Can we afford - or conversely benefit more from - a widely divergent mix of models? at the European Autumn Gas Conference in Vienna, Austria.

Dr. Lyle noted the interesting and varied approaches being employed by TSOs in Europe, especially within the context of the European Commission's Third Energy Package and the unbundling which had occurred as a result of that.

How to get to the best model was the objective of Thomas Kleefuss, CEO and Managing Director, NET4GAS, the grid operator in the Czech Republic.

"What has been done by the TSOs, by market forces, by regulation and what other things should be done in order to accelerate the way forward? It's a question how much regulation there should be. We need one market price, reliable price signals, liquid trading and adequate pipes and infrastructure," said Mr. Kleefuss.

TSOs needed to manage congestion and trading should be facilitated. Moreover, markets not smaller than 20 bcm should be connected to more than three sources of supply.

He stated: "I think this is more or less what has been established in the last couple of years, mainly after the 2009 crisis in security of supply."

There were numerous capacity platforms that had been developed by various TSOs in 2009-2010, he noted.

"The TSOs on their own have developed something to serve the market," explained Kleefuss, "without immediate regulatory pressure, and of course in competition there are various models for going forward. One of the things we believe is that if we have stronger regulation, these innovative forces will certainly be dampened and it will take much longer."

What was the next step, he asked.

"In many countries, as in Austria even market operators have been introduced, as we have in the Czech Republic," he said, outlining their functions, the buying and selling of energy, the integration of unique calculation schemes, contracts with shippers, etc.

"All commercial aspects which are dealing with the market have been taken away from the TSO," opined Mr. Kleefuss, "and we believe that this has been taken too far. On top of that, if we want to discuss how to develop the market there's even an entity with 50-60 people with regulatory and legal departments, board members, all with their own opinions, making it more difficult in discussion on the European level."

Regulatory forces were now stronger than the business forces, according to him.

"Where is the incentive to save balancing energy? To invest in energy saving, if most of these activities are in the hands of the market area operators?"

He said he believed there should be one single capacity platform. Should market area operators be competing and what did all of this mean for consolidation.

He explained, "We have about 50 TSOs in Europe, so in the light of the Third Energy Package they are being sold, as is ours. For investors in TSOs it's becoming increasingly difficult to deal with the environments of market operators, capacity platforms and to see which TSO is the best fit.

"We believe the best way of moving this forward is the consolidation of TSOs, because then there is a financial incentive to merge, and all these technical, legal and regulatory burdens can disappear very quickly."

Kleefuss said his model kept the identity of all TSOs: "It's just cooperation where people get together and agree a framework under which they do business - one would have the choice of where to buy a capacity; in the background there would be a computer system which aligns and allocates capacities, keeping in touch with the market."

Meanwhile, Gas Connect Austria OMV had another TSO strategy.

"TSO is only part of our business," explained Harald Stindl, Joint Managing Director, Gas Connect Austria OMV. "We also have distribution system operations, we are the market area manager in Austria. We also monitor storage and production activities in Austria."

Increasing Austria's role as a hub was a key goal, he said, but according to market demands.

"We don't go to the regulator saying 'please, let us keep this and we can earn interest on it.' It's strictly on an entrepreneurial approach," he explained.

Maximizing the asset portfolio was also an objective according to Mr. Stindl: "If there's a little pipeline to be built, we will do it."

He said that while there was regulatory investment, enabling the company to invest in what the regulator requested, the company still had capital discipline, competing to be able to do projects within the group.

Mr. Stindle said he had consulted with his departments to ask them what would comprise the ideal TSO. They listed security of supply, efficiency, load discrimination, stable ownership, engineering competence, long term strategy for the benefit of the natural gas business, active investment policies, profitability, internationally minded, customer orientation, etc.

In terms of future requirements and trends, he said: "I think the connection of renewables to gas is ever more important, smart grids and the power to gas problem.

"We probably also need deeper pockets," he opined, "because what were seeing now is that the commitment to projects will certainly going down - it may prove impossible to book a project for the next 20 years, so the risk balance will shift: TSOs will have to be able of taking more risk on their balance sheets."

He reported that the Austrian company had been in discussions with its peers in neighboring companies like Hungary and Slovenia with whom there was new regulation and infrastructure regarding projects of common interest.

"The best in class of the TSOs would need to fulfill the following criteria," said Mr. Stindle: "It must be adequately staffed with the necessary engineering expertise and the required infrastructure to be efficient. We're doing this but could probably go a bit further in some of these areas.

"It will need a sound financial footing, with stable ownership and a strategy, which I think OMV has. The TSO should be committed to the natural gas business and be connected along the value chain and also to electricity to understand the connections there. It also needs a global perspective and an international attitude."