How Balticconnector capacity allocation mechanism works from shipper’s perspective?

Balticconnector capacity allocation mechanism was approved by NRAs of Finland and Estonia in the end of June. The mechanism is the first of its kind in Europe due to fact that Balticconnector capacity has no price, because Finnish, Estonian and Latvian TSOs signed the agreement which enables the removal of tariffs between the countries’ borders. Balticconnector (“BC”) is an interconnection point, which connects entry-exit system of Finland and entry-exit system of Estonian-Latvian integrated market area. Thus, according to EU legislation, capacity shall be allocated at BC – either using auctions or via implicit capacity allocation. From these two, implicit capacity allocation was chosen for BC.

Market participants have asked questions about the mechanism and the firmness of capacity allocated by TSO. This article gives the answers to these questions.

Balticconnector capacity shall be allocated in part of day-ahead and within-day products on the basis of:

  1. Shippers’ confirmed nominations (OTC trading)
  2. Cross-border trades on the gas exchange.

TSO defines the share of capacity offered to the gas exchange and the share offered by TSO itself taking into account the market situation. This article focuses on the OTC trading at Balticconnector. From the beginning of 2020, GET Baltic as an exchange operator will offer implicit capacity via its trading platform. Regarding the detailed allocation principles of GET Baltic, please contact info@getbaltic.com.

The key points of BC capacity allocation mechanism for shipper (OTC trading)

  • Capacity is implicitly allocated based on confirmed nominations. Shippers need only to nominate.
  • Day-ahead and within-day capacity products are offered according to the nomination and renomination submission schedule.
  • All offered capacity at BC is firm. Already confirmed nominations and renominations are NOT changed by TSO except in unexpected technical faults.
  • If BC is congested, shippers’ nominations are reduced pro rata proportionally to nominated quantities before confirming them. If congestion occurs during renomination period, already confirmed nominations stay as such.

General principles of BC capacity allocation

Two main principles relevant for shippers can be identified:

  • Only nominations and/or renominations shall be submitted.
  • When shipper has received confirmed nomination from TSO, this can be considered as allocation of same amount of firm capacity, which will NOT be changed by TSO except in unexpected technical faults.

At Balticconnector, capacity is allocated based on confirmed nominations which means shippers’ nominations and renominations are requests of corresponding amount of capacity. TSO offers day-ahead and within-day capacity products according to the nomination submission schedule. Double-sided nomination principle applies which means that shippers both sides of Balticconnector submit nominations.

Day-ahead nominations can be submitted until D-1 at 15:00 EE(S)T. Shippers are entitled to correct their nominations as many times as they want before the abovementioned deadline. The latest nomination received by the deadline is the one which will be processed by TSO.

Starting D-1 at 15:00 EE(S)T, TSO offers within-day capacity according to renomination schedule. There are renomination cycles, which are performed every hour starting on D-1 at 17:00 EE(S)T. The renominations are required to be flat for all hours until the end of the gas day. It takes two full hours to perform the matching process by TSO. This means the renomination submitted on gas day D at 11:18 EE(S)T would be activated at 14:00 EE(S)T. The last possible renomination for the last hour of the gas day can be submitted on gas day D by 4:00 EE(S)T.

All capacity products offered at Balticconnector are firm

Confirmed nominations equal to allocated firm capacity. Once TSO has confirmed shippers’ nominations and/or renominations, TSO has allocated the same amount of firm capacity. Allocated capacity (which equals to allocated quantity) will not be changed except in unexpected technical faults. In these exceptional cases, the TSO who is causing the interruption will compensate the direct costs for affected shippers operating in the system of the causing TSO.

Matching – the process between Finnish and Estonian TSOs

Finnish and Estonian TSOs perform matching process which aligns the shippers’ nominations each side of Balticconnector. The purpose of matching process is to maximize the utilization of Balticconnector. If the nomination of the shipper pair differs, lesser rule principle is applied meaning that lower nomination value is used as a default. Matching is the process of the TSOs, so this does not require any actions from shippers.

Case example: Shipper nominates 100 units/hour and its counterparty nominates 110 units/hour. There has been some misunderstanding, because the nomination values differ. Assuming there is no congestion at BC, the confirmed nomination is 100 units/hour, because of lesser rule.

Congestion management

Only physical congestion may occur at Balticconnector. There is physical congestion situation, if the aggregated matched nominations or renominations exceed the available Balticconnector capacity. In this case shippers’ nominations or renominations are reduced pro rata, i.e. proportionally to the nominated quantities. It is important to note that already confirmed nominations and renominations stay as such. It should also be noted that received nomination is not allowed to exceed the initial available capacity.

If only a part of renominated quantities can be transported, remaining available capacity shall be divided between all renominations on a pro rata basis insofar as the quantity renominated by each shipper differs from the shipper’s effective confirmed nomination.

Case example: Shipper and its counterparty shipper on the other side of BC (forming a shipper pair) have nominated 100 units/hour for the following gas day. TSO confirms the nomination. Later, during renomination cycles, BC is congested. What happens to our confirmed nomination?

  • Nomination stays as 100 units/hour, because confirmed nominations will not be changed whatever happens after confirmation. If TSO has confirmed the shippers’ renomination of 100 units/hour, and BC is congested after the confirmation, allocated gas quantity will stay as 100 kWh/hour. Only the nominations and renominations not confirmed by TSO may be reduced due to congestion.

Case example: Available capacity is 100 units for the upcoming renomination cycle. For simplicity it is assumed that shippers in question have not submitted nominations. Shipper A renominates 60 units, shipper B 100 units and shipper C 20 units during the same renomination cycle. Capacity is allocated as follows.

Incentives for the efficient use of BC capacity

Shippers may renominate downwards at Balticconnector free of charge within the tolerance defined in the TSOs price list. For amounts exceeding this limit, shippers shall pay an underutilization fee in accordance with the price list. The underutilization fee is effective to Shippers only on all hour of those gas days when Balticconnector is congested, i.e. on days when shippers’ nominations or renominations have been reduced on a pro rata basis. Underutilization fee calculation is hourly.

If you have questions related to BC capacity allocation mechanism, please contact:

Mika Myötyri, Gas Market Specialist of Finnish Gas Transmission Services

mika.myotyri@figas.fi

+358451124515