Market-Based Instruments vital beyond Gas Market Integration

Germany’s single integrated gas market area Trading Hub Europe starts today, October 1, 2021. For the first time, the integration of the market areas of GASPOOL and NetConnect Germany brings forward the instrument of so-called market based instruments (MBI). They allow for congestion management in gas markets without conventional network development. However, market-based instruments are relevant beyond the scope of the market integration.

Sebastian Bleschke, Management Director of Initiative Erdgasspeicher e.V. (INES), comments: „Looking at the enhanced climate targets and the energy transition, planning and construction of gas transmission systems holds large insecurities. Market-based instruments can help manage these insecurities as their operation can be flexibly adapted. Network development on the other hand cannot be revised. The German Federal Network Agency (Bundesnetzagentur) has highlighted the importance of market-based instruments in the past. The Agency made it clear that, in the long run, network development is not an alternative compared to using market-based instruments. We therefore recommend having a closer look at the MBI as a general alternative to network construction. This would also allow for releasing the enormous potential of gas storage facilities for congestion management.”

In early 2021, INES developed recommendations for enhancing the potential of market-based instruments in the German gas market. Frontier Economics analysed, mandated by INES, what advantages and disadvantages a broad set of market-based instruments holds. The study can be found here.