ENTSOG Tariff NC - Implementation Document 2nd Edition

FIXED PAYABLE PRICE

ARTICLE 24(B)

Responsibility: fixed payable price approach for existing capacity under a price cap regime is subject to consultation per Article 26(1) by TSO/NRA, as NRA decides; subject to decision by NRA

General The TAR NC has included a fixed payable price approach mainly as an incentive for network users to purchase long-term capacity. A fixed payable price approach improves price certainty, provides some certainty and stability for the TSO on future contracted capacity, and improves the signals for potential system development requirements. Nevertheless, the fixed payable price approach may also have some drawbacks. A TSO can risk under-recovery if its costs change but its income does not, given the fixed payable price contracts. On the other hand, floating payable price contracts can risk cross-subsidisation. Also, improving the investment climate may not be relevant for TSOs that do not require significant investment in a declining market. Benefits for network users Price certainty from long-term capacity contracts: The fixed payable price approach improves network users’ opportunity to manage their margin risk in conjunction with long-term supply contracts. Price certainty may prompt network users to commit to contract for capacity over a longer period. Incremental aspect: A fixed payable price may be a more appropriate option for incremental capacity, where network users may need predictability before bidding for sufficient long-term capacities to justify a project economically, known as passing the economic test. Benefits for TSOs Income stability from long-term capacity contracts: As explained above, a fixed payable price approach encourages more long-term capacity bookings, and therefore provides increased certainty of TSO income, especially in a price cap regulatory regime. Incremental aspect: Projected reserve prices affect the economic test for incremen- tal capacity. A fixed payable price approach makes the economic test a more robust process, by facilitating projections of future reserve prices, which permits bidders to determine more accurately the present value of binding commitments. Under a floating payable price approach, the present value of binding commitments can only be a rough estimate, and estimation uncertainty increases with each subsequent year forecast. Estimation uncertainty may not present a significant issue in regulato- ry regimes that guarantee the revenues corresponding to an incremental project. However, in regimes with highly volatile estimated reserve prices, the fixed payable price approach helps to foster long-term commitments by network users, facilitating long-term investment.

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TAR NC Implementation Document – Second Edition September 2017