ELECTRICITY and GAS MARKETS in ESTONIA REPORT
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ELECTRICITY and GAS MARKETS in ESTONIA REPORT TALLINN 2017 TABLE OF CONTENT FOREWORD .............................................................................................................. 4 1. MAIN DEVELOPMENTS IN ELECTRICITY AND GAS MARKETS IN 2016 ...... 6 1.1 Developments in electricity market .................................................................................. 6 1.2 Developments in natural gas market ................................................................................ 8 1.3 Main changes in legislation .............................................................................................. 11 2. FUNCTIONING AND REGULATION OF ELECTRICITY MARKET .................. 12 2.1 Regulation of electricity networks .................................................................................. 12 2.1.1 Ownership unbundling ................................................................................................ 12 2.1.2 Technical functioning .................................................................................................. 13 2.1.3 Access to the network and network service price regulation ...................................... 21 2.1.4 Cross-border issues ..................................................................................................... 28 2.1.5 Electricity market related obligations of Competition Authority ................................ 31 2.2 Enhancement of competition in electricity market ....................................................... 34 2.2.1 Wholesale market of electricity ................................................................................... 34 2.2.2 Retail market of electricity .......................................................................................... 38 2.2.3 Enhancement of effective competition ........................................................................ 40 2.3 Security of electricity supply ........................................................................................... 41 2.3.1 Monitoring of balance between demand and supply ................................................... 41 2.3.2 Means to cover peak load ............................................................................................ 44 2.3.3 Security of supply related investments in production capacity and networks ............ 46 3. FUNCTIONING AND REGULATION OF NATURAL GAS MARKET .................. 51 3.1 Regulation of natural gas network ................................................................................. 51 3.1.1 Ownership unbundling ................................................................................................ 51 3.1.2 Technical functioning .................................................................................................. 52 3.1.3 Access to network and network service price regulation ............................................ 56 3.1.4 Cross-border issues ..................................................................................................... 59 3.1.5 Fulfilment of relevant legally binding decisions by regulator and market participants .............................................................................................................................................. 61 3.2 Enhancement of competition in natural gas market ..................................................... 62 3.2.1 Wholesale market of natural gas ................................................................................. 62 3.2.2 Retail market of natural gas ........................................................................................ 65 3.2.3 Enhancement of effective competition in natural gas market ..................................... 68 3.3 Security of natural gas supply ......................................................................................... 69 3.3.1 Monitoring of balance between supply and demand ................................................... 70 2 3.3.2 Anticipated future demand and available free capacity together with planned additional volumes ................................................................................................................................ 72 3.3.3 Measures to cover peak demand or supply deficit ...................................................... 74 4. CONSUMER PROTECTION AND RESOLUTION OF DISPUTES IN ELECTRICITY AND NATURAL GAS SECTORS ............................................................................. 77 4.1 Consumer protection ........................................................................................................ 77 4.1.1 In electricity sector ...................................................................................................... 77 4.1.2 In natural gas sector ..................................................................................................... 82 4.2 Resolution of disputes ...................................................................................................... 86 4.2.1 In electricity sector ...................................................................................................... 86 4.2.2 In natural gas sector ..................................................................................................... 87 3 Foreword Dear readers, I am pleased to introduce toyou the 2016 overview of the electricity and gas markets in Estonia. 2016 will be remembered by such key words as common energy policy of the European Union and new directions in the development of the sector. The objectives are an efficiently functioning energy market and a very clear trend towards CO2-neutral energy production, including maximum implementation of the energy conservation potential. Recalling the three Common Basic Principles of the European Union (EU) once again a question rises, whether the free trade principles in the energy sector are really something very specific and complicated to implement. Taking some other daily needed commodity we wouldn’t easily imagine a situation where EU manufactured products that correspond to all quality requirements experience problems with delivery to some other Member State. Undoubtedly, electricity supply has its certain specifics, where frequency maintaining is necessary and the supply may not be disrupted not even for a fraction of second. To some extent, also gas supply has similar specifics where the supply of fuel has to be guaranteed according to the need, although compared to electricity the situation is somewhat simpler, as the gas supply pipelines have high volume and shorter disruptions in supply are not immediately recognizable in the consumption side. But, a discussion on the topic brings inadvertently to a thought that the energy market shall also function in a manner that there may not be barriers in providing supplies from one Member State to the other. Estonia along with other Baltic states is a very good example in the integration of markets and exemplifies the rest of Europe. We are still synchronised with the electricity system of the former Soviet Union. Although we have only direct current connections with Finland, Sweden and Poland, yet we have succeeded in bringing into operation the Scandinavian-Baltic regional electricity market, which corresponds to the Common Basic Principles of the EU and where electricity as a commodity moves without barriers. A very clear indicator is the equable electricity price in the Estonian and Finnish price areas. It is definitely possible to improve the system even further – in the coming years an additional Estonia-Latvia electricity transmission line will enter into service and it is expected that this will eliminate any price difference in the entire Baltic region. The year of 2016 and especially the beginning of 2017 will memorise in the light of the Gazprom investigation initiated by the European Commission. The major spotlight revealed was the fact that the gas producer in the monopolistic position used the opportunities and sold gas in the Central and Eastern Europe price area at a higher price than in other areas of Europe. It makes sense – if competition is absent, then the price can be dictated and the customers have no other option as to pay the higher price. In the Western Europe there were no such opportunities and the reason is very simple – sufficient competition balances the prices and if a supplier attempts to charge too high price, it will lose the market to competitors. In connection with the proceedings of the Directorate-General for Competition of the EC there has been a lot of criticism from the Central and Eastern Europe region states. The main message has been that the measures proposed by Gazprom are in broad terms as they do not secure a competitive price and do not prevent from possible violation in the future. The Competition Authority shares the aforesaid criticism and finds that measures have to be more efficient. At the same time, as the name of our organisation says as well, the best solution is to facilitate free competition and the creation of multiple supply chains in the gas supply. Though it is possible to harness a monopoly and it may give a short term results, but the monopoly is monopoly and the best regulator is 4 free competition that secures a fair price for goods and services. That is why it is necessary to develop alternative supply sources in the gas supply and strengthen gas connections between the Member States. Thanks to the Klaipeda LNG terminal in the Baltic states we already