Indicators to measure market performance

Bart Vereecke

Madrid, 23 October 2019

To assess the performance of EU gas markets the AGTM* uses the so-called market health metrics…

AGTM indicators

Overview of EU MSs AGTM market health metrics – 2018

* The AGTM is a model for the IGM developed by the sector. It sets the following goal: “(...) competitive European gas market, comprising entry-exit zones with liquid

virtual trading points, where market integration is served by appropriate levels of infrastructure, which is utilised efficiently and enables gas to move freely between market

areas to the locations where it is most valued by gas market participants”. Source: ACER calculation based on ENTSOG capacity data, Eurostat and NRAs.

Market health’ metrics evaluate whether gas markets are structurally competitive, resilient and exhibit a sufficient degree of diversity of supply. Metrics: • Number of

sources • HHI • RSI

AGTM indicators

2018 EU gas hubs categorization

A gradual improvement of

metrics’ results is observed

since 2013

Traded volumes up

Diversity of products

improving

Several hubs functioning

better

But

Some ‘hubs’ do not take off

Limited improvement in

terms of forward liquidity

Most hubs remain at some

distance from AGTM targets

Has an ‘equilibrium’ been

reached?

Source: ACER calculation based on AGTM metric results.

… and market participants’ needs metrics

Market participants’ needs metrics assess the well-functioning degree of hubs via: • Order book

volume • Bid-offer spread • Number of

trades • Market

concentration for trading activities

To rank hubs, ACER also uses • Traded volumes • Breakdown hub

traded volumes • Number of

market participants

On top of the AGTM metrics, the MMR analyses additional market indicators to examine gas markets’ performance…

Additional MMR indicators

• Gas suppliers’ sourcing costs across MSs

• Levels of hub price convergence and hub price correlation

• LNG and UGS performance metrics

Source: ACER calculation based on Eurostat Comext, ICIS and NRAs

… as well as network codes related metrics

Additional MMR indicators

• Hub price spreads positioning compared to transportation tariffs

• Breakdown of IPs bookings per capacity product and booking’s

• TSO balancing volumes procured on the DA and WD markets as well as the

corresponding TSO share

* PRISMA covers products auctioned in 2016, 2017 and 2018; GSA 2015, 2016, 2017 and 2018 while RBP from May 2017 to end of December 2018.

Source: ACER calculation based on data from GSA, PRISMA, RBP, ENTSOG TP.

Observed possibilities and limitations

Possibilities and limitations

1. Data availability: can be an issue, for example, where there is no hub, there is often no data to assess. Hence, we tend to look at those MSs NCs, hubs, etc where they are working but less at why these do not work in some cases

2. Data manipulation: REMIT offers a wealth of data-mining potential which is as yet not fully utilised. The MMR team adds every year as much as possible new innovative REMIT based analysis and modelling capabilities

3. Some topics not included in AGTM impact market functioning: e.g. LNG, underground gas storage

4. AGTM and the Gas Directive have not ‘exhaustively’ defined what an ‘ideal’ market area is. AGTM is excellent for an aggregated view and the inclusion of other metrics as discussed helps to get to already quite a detailed view on MSs but less so on those where market is less developed

Triggering hub-improvement, particularly for those markets lagging behind are market integration initiatives …

o The AGTM states that if MSs fall behind AGTM metrics, on a continuous basis, specific hub-improvement actions shall be sought. Also markets’ integration should be explored

o AGTM is a voluntary exercise o Should decarbonisation Package be more

prescriptive? o If yes, should ACER via e.g. monitoring play an

instrumental role?

o MSs may be reluctant to embark on market integration efforts if benefits are not clearly established

o Therefore thorough understanding of benefits is important : e.g. at retail level, enhanced price-transparency….

How?

• Distinct regional thresholds but

also new indicators could be set

(e.g. detect market distortions)

• Indicators could be employed to

assess relevance of mergers (e.g.

retail level)

• Further guidance/roadmaps about

challenging topics (e.g. ITCs)

• Gradual market integration actions

can take place prior to a full

market merger

Tools for hub development – for discussion

AGTM proposes self hub-improvement actions or even deeper integration initiatives, such as market mergers. However, supranational market mergers turn out to be challenging (e.g. tariff aspects including ITCs, system management aspects). Voluntary or prescriptive approach

Evaluation of benefits is crucial

1. Goal: to unlock untapped IGM potential in MSs with weak(er) market functioning

2. How would this work?

• Specific metrics would be monitored versus a ‘minimum threshold’ which would trigger

targeted regulation in case not met

• How tailored regulation would be defined, defines monitoring practice

• Concept with practical implementation left open -> ad hoc monitoring

• Specific with a regulatory toolkit including specific areas -> rolling monitoring

Implementation of capacity or commodity release programs

Mandatory introduction of market makers in hubs

• Toolkit approach has advantage that specific metrics could be developed if needed and

monitored over time, however, it could have a lock-in effect if the toolkit is fully pre-defined. Mix

of both concepts to be used?

3. Monitoring indicators can be leveraged to further understand the fitness of possible tailor-made

measures. Do current MMR metrics suffice or would extra metrics be needed? Likely this would

lead to more detailed monitoring by ACER (and or NRAs) but possibly at the same time other

metrics might be dropped.

4. ACER practice in monitoring is currently to cover metrics for all MSs. With tailored regulation this

practice would need to be complemented with metrics that focus on one or more MSs.

… or with tailored regulation. Relevance of monitoring in bringing factual

insights. Which metrics would trigger targeted regulation?

Tools for hub development – for discussion