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2015-05-26 18:55:00

EU GAS STORAGE

EU GAS STORAGE

Some harsh winters have proven how necessary having a well-developed gas storage system is, Nicole Otterberg has said. In her role as Managing Director of E.ON Gas Storage, and as President of industry body Gas Storage Europe (GSE), Ms. Otterberg has seen how the right storage approaches have helped to maintain security of supply, not just for Germany and Austria but for the whole of Europe.

But, despite this history and reputation, the gas storage sector is being squeezed by a market that favours getting the lowest cost possible for its gas storage, Ms. Otterberg says, an approach that could force smaller units to close in the future or gas storage operators to decide not to develop necessary—but costly—new storage sites.

Ms. Otterberg sat down with Natural Gas Europe at the 2015 GIE Conference in Europe to discuss gas storage market in Germany, Austria, and in Europe overall.

So what does she say are the major challenges facing the sector?

"The major challenge is that the value of storage is not widely recognised," she says. "Storage is there and in the past years, it has always worked that there is enough storage capacity when it is needed in a long or cold winter. But current market prices do not reflect that."

The unwillingness to pay a fair price for the service gas storage operators provide is a matter of contention for the GSE; in fact, Ms. Otterberg says that the body is lobbying for a change in how transport costs are charged and how they are currently shouldered by the gas storage sector.

At present, gas storage customers pay not only an entry/exit fee for use of the service but also transportation costs that are set by the transmission system operator (TSO). The customer balances that against what he is paying the gas storage operator before deciding how much to pay.

That balance often does not fall in the gas storage operator's favour, Ms. Otterberg says. "The customer is burdened with that cost but he puts it on us. Therefore, we are lobbying that for us it is necessary for transmission costs to and from storage to be as low as possible and they should only be charged in case storage sites create additional costs to the transmission system."

This is a matter of major import for gas storage operators in Europe, the GSE President says.

"Our work in GSE is currently focussed on getting policy makers and stakeholders at European level to recognise that the 'insurance' and 'system stability' elements that gas storage contributes to the whole value chain need to be better reflected in the gas market design," she explains. "Gas storage needs a level playing field to compete in the wider flexibility market, i.e. fair transmission tariffs, no undue burdens for product innovations and its essential role in ensuring security of gas supply."

When you consider the role of gas storage in ensuring the security of gas supply to Europe, it is perhaps a little surprising that the market is not willing to pay a greater amount for the service.

Take the relatively harsh winters of 2012 and 2013 as an example. Though the length and cold of the two winters put pressure on the gas sector to deliver, a crisis was largely avoided. Without the assistance of gas storage sites, it would have been impossible to supply all the customers who rely on gas.

"In some countries they were down to less than 10 %, but we managed the situation," Ms. Otterberg says. "We were able to prove that storage is reliable and could help to overcome that situation."

Ensuring security of supply is one of Ms. Otterberg's major concerns in her role as President of the GSE. Key to achieving this is to encourage transparency in the sector.

As such, the GSE has encouraged countries across Europe to begin self-reporting various aspects of their business, including the filling level of every storage site, withdrawal and injection rates, and plant maintenance information. All the results are made publically available, so customers can plan more easily their strategy and need for withdrawal or injection.

Currently, more than 30 Storage Operators deliver online daily data representing approximately 90 bcm, (or 90 %) of the EU's technical storage capacity, with more being added—Romania will join from next month.

But it's not just the customer who benefits from the availability of this information. The approach also assists the European Commission and national and international politicians, Ms. Otterberg says.

She presents to the Commission at least twice a year to present the filling levels of the storage sites under her purview.

"That's a good tool for all the officials to see whether there's a potential threat danger we could run out of gas in storage, in case of another cold winter," she says. "We have also been taking information from Ukraine's storage sites since last year. That is highly appreciated because knowledge of the filling levels in Ukraine helps in making predictions."

New technologies and programmes are also contributing to security of supply. Despite the price squeeze from the market, the E.ON Innovation Center Energy Storage is tasked with finding and progressing the technologies and infrastructure that can help to safeguard against the highs and lows of the market.

This is especially important because of—not in spite of—the growing renewables sector, Ms. Otterberg explains.

"These activities are based on the view that the expansion of power from renewable sources poses a major new challenge," Ms. Otterberg says. "The energy is available whenever and wherever the wind blows or the sun shines, often at remote locations or times of low demand. Energy demand has always been subject to fluctuation, but now generation will also fluctuate and take place at considerable distances. As a result, temporary network overloading is already resulting in the forced shut-down of generating facilities and preventing optimum use of the system."

She predicts that, if not tackled, shortages could result in the future. "Attempts are being made to avoid these problems by expanding power grids, but this assumes that generation and demand will always coincide in terms of time and location. This is not necessarily the case and ideally the adopted solution would be supplemented by the storage of energy."

To combat these shortages, the Innovation Center Energy Storage is focusing on a number of areas, including electric storage (e.g. batteries), storage in the form of gas (e.g. conversion from power to hydrogen using power-to-gas technology or compressed air storage), and heat storage (e.g. for combined heat and power plants).

One of the most successful recent projects is the Falkenhagen "Power to gas" pilot project, which was launched in August 2013. It operates in two ways. First, it feeds hydrogen into the system and into the existing gas market. Secondly, it directly markets to the final customer.

This kind of innovation is just one way that E.ON is working to move with the changing sector and to suit the customers' individual needs. The way the company has approached pricing has changed from what was traditional, too.

"We had a fixed working gas volume combined with entry capacity and exit capacity," Ms. Otterberg says. "That is a bundled product. Quite soon we recognised that not every customer has the same needs. So we said, 'Okay, if that does not fit, we unbundle this product,' which means that the customer would have the possibility, if he needs more injection capacity, less withdrawal capacity, or another combination, he could book that as well. So it's somewhat more tailor-made to the customer."

"Our objective is to comprehensively serve the needs of our customers. Of course, we make our products available to all market players on a non-discriminatory basis. We are also continually developing other interesting, competitive products. There, we learned that the customer is sometimes more interested in not having a fixed price but a price that is somewhat fluctuating with the market." Now the company offers index-priced products, too, where the basis of the payment is a summer-winter spread and the volatility, for example, of the storage site.

"Based on that we created a formula whereby the customer, if he books over several years, could swing with the market."

Still, the sector is fighting to have its value recognised in monetary terms—if not in security terms—by the market. Part of the issue is that, though the market has changed, the structure of it has not, Ms. Otterberg says.

"Storage requires fair competitive conditions and appropriate remuneration of individual contributions to added value. Market design needs to be 'evolutionised' to ensure a high level of supply security both now and in the future.

"Also, in the past, the responsibilities were clearer. It was the one, two, three, four energy companies who were responsible for security of supply. But, with the liberalisation, splitting up, and unbundling of these tasks, it's not all that clear who is responsible for what."

This, she says, is perhaps the most important next step on a governmental and Commission level. "So the definition of responsibilities is maybe the first step where we need to be clearer."

Whether this step is taken remains to be seen; to ensure one of the most valuable parts of the gas sector is protected, assigning responsibility and ensuring a fair price for gas storage operators may prove essential to the continent's security of supply.

naturalgaseurope.com

Tags: EU, GAS

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