Position paper on the European Commission’s Review of the EU Gas Market Design

Road in a valley

The Russian invasion of Ukraine has initiated discussions on the overall EU’s energy strategy, demonstrating the urgency to both accelerate decarbonisation efforts, especially through the deployment of renewables such as renewable and low-carbon gases, and to diversify gas imports to reduce dependencies and ensure the European industry’s and citizens’ security of supply.

In the transition phase, natural gas will keep playing an important bridging role, as it is deeply established in many Member States. Natural gas reduces emissions significantly by replacing oil, hard coal and lignite and providing flexibility to a system with an increasing share of fluctuating renewables. At the same time, all efforts should be made to deploy renewable and low-carbon gases such as hydrogen or biogas / biomethane on a large scale and facilitate the roll-out of technologies such as carbon capture, utilisation and storage (CCUS).

Executive summary

  1. The Russian invasion of Ukraine has initiated discussions on the overall EU’s energy strategy, demonstrating the need to accelerate decarbonisation efforts, especially the deployment of renewables such as renewable and low-carbon gases, including hydrogen. In the transition phase, natural gas will keep playing an important bridging role, as it is deeply established in many Member States.
  2. Clear definitions for the different types of renewable and low-carbon gases, including hydrogen - e.g. grid-connected electrolytic hydrogen -, are required. A definition for renewable hydrogen is currently missing and should be inserted in the EU framework.
  3. The methodology to certify the greenhouse gas emission savings of low-carbon gases should be clarified asap in an annex to the Gas Directive and links with the mass balancing system avoided, as physical tracking of molecules is technically impossible.
  4. Tariff rebates for renewable and low-carbon gases should in principle be supported provided that sufficient safeguards in terms of transparency, fairness of the cost-allocation system, non-distortion of market signals are inserted. Additional incentives, targeting the uptake of these gases, should be included in the proposals.
  5. Blending of renewable and low-carbon gases provides for a cost-efficient, swift first step to energy system decarbonisation. The requirement for transmission system operators to accept cross-border flows of gases with a hydrogen content of up to 5% by volume strikes the right balance between support to hydrogen deployment and technical limitations.
  6. Whilst the need for flexibility through temporary exemptions should be acknowledged during the first phase of hydrogen infrastructure development, strict regulatory principles will then have to be respected:
    - Vertical unbundling: strict ownership unbundling rules, i.e. the effective separation of network operators from activities of production, supply and storage, should be enshrined into law.
    - Cross-subsidisation: in general, strict separation of different regulated asset bases should be the norm between the hydrogen and gas networks and public support / grants could be envisaged at early stages of hydrogen network development.
    - Third-party access (TPA): regulated TPA should be introduced for hydrogen networks and hydrogen storages, and negotiated TPA for hydrogen terminals under specific circumstances.
  7. Natural gas provisions should generally be upheld as they contribute to the creation of liquid markets. Whilst long-term contracts (LTCs) for renewable and low-carbon gases should be promoted, the ban on LTCs of unabated fossil gas beyond 2049 is in line with the overall EU’s objective to reach climate neutrality in 2050.
  8. LNG plays an increasingly important role in the EU energy mix as it helps to further diversify gas supplies and enhance competition. Measures increasing transparency will generally contribute to improving the efficiency of the system.
  9. Gas storages are paramount to ensuring security of supply and providing flexibility to the overall system. Whilst discussions on storages are evolving quickly in light of the current geopolitical situation, the following points focus exclusively on the review of the Security of Gas Supply Regulation, as proposed by the European Commission on 15 December:
    - It should be left to the Member States to determine the entity that manages the purchase of strategic stocks, for instance market areas managers (for instance THE in Germany). In case TSOs are the chosen entities, it should be explicitly stated that the strategic stock can be used by TSOs exclusively to carry out their functions, i.e. safeguard transport network system stability, and not for the superordinate purpose of security of supply
    - Joint procurement of strategic gas stocks by TSOs should be supported insofar that it remains a voluntary act and that stocks are used only for system stability purposes
    - Member States should be required to put in place the necessary measures to ensure security of supply and to demonstrate their choice in their national risk assessments. They should remain free to decide whether and in which form storage facilities should be used as there is no ‘one size fits all’ solution.

 

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More information:

Peter Röttgen

Peter Röttgen

VP, Public Affairs Germany
Tel: +49 173 471 7427
FortumDeutschlandSE [at] fortum [dot] com