February 22, 2024 [Argus]- Energy Traders Europe has called on the European Commission and energy regulators’ association Acer to provide guidance on the legality of gas storage levies as soon as possible.
The association recently changed its name from European Federation of Energy Traders (Efet) to help people “immediately understand who we represent”, its chief executive, Mark Copley, told Argus. At a time when “energy is more political than ever”, it wants to be “more vocal in making the arguments that explain why trading helps customers across Europe”, Copley said.
The commission and Acer have been reticent to provide a full opinion on the gas storage levy imposed by Germany and the one planned by Italy, and while Copley “knows that both are taking this seriously and working on it, public statements would be welcome”, he said. The association’s members have been “providing them with their views and experiences”, but the “risk of contagion grows over time”. But the association remains “hopeful that German authorities recognise that this will ultimately impose additional costs on German consumers and can propose new tariffs without a legal challenge”, Copley said.
Storage levies “should not be charged on cross-border points at the expense of consumers in other member states”, as this “creates uncertainty, fragments markets, increases price spreads between countries and goes against the spirit of energy solidarity”, Copley said, echoing previous comments by the association. Attempts to recover the costs of strategic or national stocks should instead be carried out in a “non-discriminatory way via domestic network tariffs”. The size of the levies perhaps reflects the “unintended consequences of developing policies too quickly”, Copley said.
The potential imposition of a similar charge in Italy would “translate into an economic incentive to import gas from Russia” for countries in central and eastern Europe and would make storing gas in Ukraine more expensive, Copley said. If these levies are deemed legitimate, “many countries in central and southeastern Europe may end up facing additional pancaked costs of importing gas from western routes that cross more boundaries”, going “directly against Europe’s efforts to diversify supply”, he said.
Mandatory storage filling targets are another measure that should “certainly not exist in ‘normal’ situations, and there are respectable arguments that they should not exist at all”, he said. While the rush to ensure there was gas in storage is understandable from a political perspective, “too often transmission system operators were assigned very interventionist roles, channelled gas purchases into a narrow window that contributed to prices spiking and stopped traders doing what they’d normally do”. Gas was injected into storage “irrespective of what was happening” elsewhere in the market, he said. Some of the costs that are now having to be recovered through higher tariffs are “a result of badly designed storage policies”.
There has been a notable increase in new pipelines, interconnection capacity and LNG import capacity in central and eastern Europe over the past five years, but the “slowness of market reform in the region is preventing the use of that infrastructure efficiently”, Copley said. The priority should be improving access terms rather than building more pipelines, he said, noting that there is “already huge south-to-north capacity in the Trans-Balkan pipeline that could be better used”. There are “various worries” for association members, such as Turkey-Bulgaria capacity being tied up in the deal between state-owned incumbents Botas and Bulgartransgaz, and issues in Romania regarding centralised market obligations. These types of issues “chill the interest and usability of capacity”, he said.
“Greater stability and predictability in European energy policy” would also support European domestic gas production, and biomethane can play a role here too, he said. “But there is work to do to develop functioning biomethane markets, including the import of renewable gases from third countries”.
In the power market, Europe needs a “massive expansion” of most capacity types, including combined-cycle gas turbines with carbon capture. The key is to “make sure that the market design can reward the capabilities that a renewables-heavy system needs” — including the pricing of flexibility — hopefully helping to steer investment into the right assets”, he said. This includes a further merging of balancing markets and better functioning intra-day markets, he said. “The interaction with gas and hydrogen markets — and the price signals in all of those markets that will enable efficient decisions — will be a key part of addressing the challenges that will arise,” Copley concluded.
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