The Finnish gas market will be opened up to competition at the start of 2020
Natural gas markets will be opened as a part of the EU vision of a common gas market in Europe. Gas sales and transmission businesses will be unbundled with the aim of ensuring non-discriminatory access to the market. The Finnish gas market will be opened for competition from the beginning of 2020 when the Balticconnector pipeline is operational.
The new Natural Gas Market Act (587/2017, in Finnish) and the legislation on unbundling of the TSO (588/2017, in Finnish) entered into force at the beginning of 2018. According to the reformed natural gas market legislation, the gas transmission network owned by Gasum must be unbundled from the gas production and sales in accordance with a “full ownership unbundling model” by 1 January 2020, when the natural gas markets will be opened for competition.
Effects of the opening of the Finnish gas market
The market model for the open gas market will be determined through market rules
The opening gas market will require jointly agreed rules and operating models in addition to the updated legislation and regulations. The market rules will determine which types of roles the open gas market will have, and how parties having these roles should act on the gas market.
The target of the market rules is to create a market model which is clear, well-functioning, non-discriminatory and cost-efficient for the Finnish gas market. The target is also to facilitate access of new market participants to enter into the market.
The market model development started during the first half of 2017 and during the years there have been tens of workshops to which market participants were invited to provide their views and opinions. The Finnish gas market rules were developed based on the discussion in the workshops. The work to prepare the gas market model and the rules is guided by the project’s steering group, which is led by the Ministry of Economic Affairs and Employment in Finland. The steering group members are Ministry of Economic Affair and Employment, Energy Authority, Gasum, Finnish Gas Transmission Services and Baltic Connector.
The market rules have been approved. The binding market rule document is in Finnish language, but the non-binding English version of the market rules can be found here: Visit Kaasumarkkina.fi website. The website also includes a document of the centralized data exchange processes for the retail gas market, as well as the document of gas metering recommendations.
In the future, gas will be available from several sources
At present, the natural gas consumed in Finland comes from a single entry point from Russia via Imatra connection point. In the future, when the Balticconnector pipeline is completed, gas market participants will also be able to buy gas from different sources, besides biogas from, Baltic countries entered into market area through connection points with Russia and from Klaipeda LNG terminal located in Lithuania.
In addition, the connecting pipeline between Lithuania and Poland, GIPL, is scheduled to be completed by the end of 2021, providing a physical access to the gas infrastructure in central Europe. This will include a connection to Norwegian gas fields via the Baltic Pipe which will allow transport of gas from Norway through Denmark, Poland and Baltic countries to Finland. The investment decisions of GIPL and Baltic Pipe were made in 2018.
There is also a large underground gas storage facility in Incukalns, Latvia. Finnish market participants will also have access to this natural gas storage facility when Balticconnector is completed.
Impact on the pricing of natural gas transmission
As of 1 January 2020, Finland must comply with European Commission Regulation 2017/460 on harmonised transmission tariff structures for gas. Compared the current tariff model, the tariff structure will be significantly changed on the opening gas market.
From the beginning of 2020, capacity and commodity tariffs will be charged for gas transmission. The capacity fee will be based on the duration for which capacity is booked, irrespective of whether a shipper uses its booked capacity or not. The purpose of commodity fee is to cover the transportation costs of gas which occurs e.g. due to operation of compressor stations. On the opened gas market, the unit price for the capacity product will be based on the duration of the booked capacity product which differs a lot of the current practice in which the size of the end user (consumption) has an impact on the tariff. Yearly, quarterly, monthly, daily and within-day capacity products will be offered. Yearly products are called as long-term products and all shorter-term products are called as short-term products. The tariffs of short-term products are based on the tariff of long-term product. The shorter the capacity products, the higher multiplier will be applied.
The pricing of transmission service is based on postage stamp pricing methodology, where the transmission tariff is the same regardless of where the entry or exit point of transmission network is physically located.
The seasonal coefficient will be 1 throughout the year. This means that the tariffs of capacity products will be the same throughout the year.
Market integration promotes competition
The energy and climate strategy of Finnish Government aims to create functional, integrated regional gas market of Finland, Estonia, Latvia and Lithuania. The objective of the integrated regional gas market is to enhance competition, facilitate market participants’ operations and create cost-efficient model to which both market participants and TSOs gain benefits.
Market integration is promoted in Finland, Estonia, Latvia and Lithuania by the Regional Gas Market Coordination Group (RGMCG), consisting of the ministries responsible for energy, national regulatory authorities and transmission system operators. The RGMCG convenes approximately four times per year. The RGMCG has a rotating chairmanship and, in 2019, the work will be led by the Latvian government ministry responsible for energy. The Finnish members of the RGMCG are the Ministry of Economic Affairs and Employment in Finland, the Energy Authority, Baltic Connector, Gasum and Finnish Gas Transmission Services.
In October 2018, the TSOs of Estonia, Latvia and Finland signed a memorandum of understanding to continue developing strong collaboration and the regional gas market. Negotiations with Lithuania are ongoing. The objective is to integrate the markets of the four countries so that the common entry-exit zone will be established. Finland has set the target to join to the common balancing zone in 2022 at the earliest.
TSOs of Finland, Estonia and Latvia have signed an Inter-TSO-Compensation (‘ITC’) Agreement in 2019. As a result of the agreement, a common tariff area will be established between Finland, Estonia and Latvia. In the common tariff area entry tariffs shall be unified and the tariffs from internal border points (FI-EST border point and EST-LV border point)shall be removedfrom the beginning of 2020.
The agreement is expected to lead to higher market liquidity by making it easier for shippers and traders to buy and sell gas on the common tariff area. One of the practical effects of the agreement is that there won’t be transmission tariffs at Balticconnector interconnection point. In addition, there won’t won’t be commercial interconnection point at all between Estonia and Latvia due to the target to establish a Latvian-Estonian common balancing zone from the beginning of 2020.
What should market participants know about the opening of the gas market?
We have begun compiling questions and answers on our Q&A page concerning practical matters that will be affected when the gas market is opened up.
See the questions and answers.
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We will update the website regularly, so let us know if there is a topic you would like to know more about.