How to create regional markets for balancing in practice

1. ERGEG Regional Initiative Region South-South East 4th Stakeholder Group meeting Italian Balancing Point TF How to create regional markets for balancing in practiceAthens 10 June 2008

2. How to create regional markets for balancing in practice The development of hub as Balancing points has been identified by ERGEG as one of the “KEY objective” of the SSE Regional Initiative The IBP TF recognized that implementation of a balancing market would positively impact the functioning of the overall gas market • The balancing market mechanism contributes to improve the liquidity of the hub and the trading of gas

3. Create regional markets for balancing in practice The TF point of view In principle the balancing point should have a regional extention In practice however the SSE regional market lacks: - an harmonized business environment - a well meshed gas grid - adequate available interconnection capacities Two/three balancing points in the SSE region is a more realistic objective

4. Create regional markets for balancing in practice The TF point of view • As a first step develop two/three hubs in the region acting as balancing points for their reference area. • In the longer term the local balancing points could evolve to a regional dimension.

5. Regioni italiane Focus on the Italian Balancing PointThe IBP Activity • Workshop withthe Italian Association of Energy Traders (Aiget) November 2007 • Meeting with the Regulatory Authority - December 2007 - March 2008 • Meeting with the Italian Transmission Operator (SRG) - January 2008 • Meetings with the main Network Users

6. A balancing point for the Italian gas marketIBP TF Preferred features • Daily balancing mechanism: higher guarantee for operators with small portfolio; easier to manage • Independent Market Operator • Anonymous exchanges • Clearing price published ex-post • Tolerance level: fixed or decreasing with the amount of demand • Ex-post trading: as long as the market is not well-functioning and liquid • Back-up back-down services provided by the market

7. Giorno Gas G – 1 Giorno Gas G Settlement (15 m+1) Bilanciamento a Stoccaggio (*)/IBP Bilancio Commerciale Provvisorio Bilancio Commerciale Definitivo • Ex post Trading • Tolerance Level • … Nuove posizioni Shipper su IBP  ACQ/VEN Determinazione Corrispettivi Sbilanciamento Prezzo Medio IBP Pay as Bid NDM (°) Non Daily Metered DM Daily Metered h. 18 Pubblicazione Scambi + Esiti IBP-intraday Market Recupero costi TSO INTRADAY MARKET AltraWeb, SAMPEI, Polaris… Fatturazione sbilanciamenti h. 12 Posizione Shipper fino alle h. 18offerte Acquisto/Vendita su IBP-intraday MKT h. 13comunicazione progr trasporto e stock Giorno G • Consentiti scambi tra operatori • … Note (°) Eventualmente aggregati per profilo di prelievo [da verificare a quale livello territoriale aggregabili: nazionale, area di prelievo, cabina…] Scambi su piattaforme relativi a Giorno G h. 12registrazione accordi PSVx Giorno G Scambi su piattaforme relativi a Giorno G Scambi su piattaforme relativi a Giorno G (*) In alternativa è possibile prevedere l’applicazione di corrispettivi di sbilanciamento differenziati, meno “severi” per gli NDM Italian Balancing Point

8. Focus on the Italian Balancing PointConcret Developments April 2008 First Consultation Document on “Potential Evolution of the Balancing Service in the Natural Gas Market” (DCO 10/08) Main topics proposed for discussion: - Length of the Relevant Period - Balancing responsibility - Balancing Market Operation - Imbalance Charges Next steps: • Consultation Document on a Gas Exchange • Second Consultation Document on the Gas Balancing Market

9. Consultation Document on the Italian Balancing MarketTopics under discussion Length of the Relevant Period Choice of daily or hourly period taking into account: • Availability of info or of hedging possibilities on shippers imbalance position over the relevant period • Possibility for gradual implementation of hourly balancing limited to main inputs and offtakes • Harmonisation at international level needed Recommendation: “It is important that network users are not exposed to undue risks that they cannot manage effectively and/or without incurring inefficient costs that could create barriers to entry to the market” (GGPGB 1.9) The Cons Doc suggests the need for a C-B analysis

10. Consultation Document on the Italian Balancing MarketTopics under discussion Balancing Responsibility • Snam Rete Gas responsible for dispatching and residual gas balancing – buys gas from market • Centralised platform for gas balancing offers • Independent Balancing Market Operator (open) Imbalance charges • Cost Reflective • Promote shippers efficent behaviour

11. Consultation Document on the Italian Balancing MarketTopics under discussion Operation of the Balancing Market • Shipper offer “balancing gas” (day a-head) • Criteria for selection of offers • Price for selected offers Recommendation: “In the absence of a well functioning/liquid within day market, allowing market participants to manage their imbalance positions efficiently, the TSO should have or should allow systems to be put in place to facilitate the pooling and trading of imbalance positions.” (GGPGB 1.18)

12. How to create regional markets for balancing in practice • Create two-three active balancing points in the south-south east region • Given the present actual possibilities for short term gas trading, the points should be based on compatible balancing regimes (fully harmonised in perspective) • Attention should be paid that regimes evolves with increasing short term trading possibilities • The proposal for the Italian Balancing Market is in line with the above requirements