Rethinking Entry-Exit
The proclaimed Energy Union aims at giving EU consumers secure, sustainable, competitive and affordable energy. The achievement of at least two of these goals, notably affordability and security of supply, could be furthered substantially by rethinking the entry-exit tariff design of European gas transmission networks.
In a new discussion paper by ewi Cologne, the author Harald Hecking advocates for reducing tariffs at border points between European gas markets: "Lower transit tariffs would allow for much more efficient arbitrage between the various pipeline gas and LNG suppliers for the benefit of the European gas consumers. This would foster competition and market liquidity."
To protect TSOs' allowed revenues, the tariffs reductions at border points within the EU should be balanced by increases of tariffs at entry points into the EU and potentially also at exit points from the gas transmission grid.
In particular, a clever design of tariffs for entry into the EU could be used to intensify upstream competition, thereby implicitly making non-EU suppliers co-finance the costs for European gas transports. In doing so, tariffs at the EU-entry points for gas from lower cost non-EU suppliers would be higher than the tariffs at EU-entries of higher cost suppliers. Thus, by enhancing supply-side competition, the tariff model could redistribute parts of the profit margin from gas suppliers to the EU gas users.
The question of future gas transport tariffs is of highest relevance for European gas consumers, which is underlined by Hecking as he illustrates the order of magnitude: "For each Euro per MWh that gas prices would decrease from a tariff redesign and increased competition, European gas consumers would save 4.5 to 5 billion EUR per year."
The paper is intended to contribute to the ongoing discussion on the network code for harmonised transmission tariff structures for gas (the TAR NC). A new research stream at ewi Cologne will assess the design of European entry-exit tariffs and its effects on competition in more detail over the next years.