Monitoring Natural Gas Balancing Markets
A practical guide for regulators on how the performance of the implemented balancing mechanisms can be assessed
Gas market liberalization is an ongoing process in many ERRA countries. By now it has turned out to be an iterative development process instead of a one-time transition as it took as long as 20 years for numerous, now mature EU countries. The experience of these markets has also shown that balancing mechanisms had pivotal role in this market transition process. The designing of the balancing mechanism is thus a crucial regulatory task which shapes current and future functioning of gas markets. Balancing regulation can be perceived as a continuous, adaptive designing process: matching the rules to the market’s structure, its capabilities, and the regulatory aims. Consequently, regulators should closely monitor and assess the effects of implemented balancing measures on the market. Despite such importance of analyzing the effect of the implemented balancing schemes, little explicit guidance is available either from EU institutions or from academic literature. Furthermore, most of these focus on the analysis of liquidity on the developed trading hubs, which does not provide a solution for most ERRA countries which either lack a centralized trading platform or it is still underdeveloped.
This paper aims to contribute to the work of regulators by providing an example on how such balancing-focused market analysis could be conducted in practice. We build a theoretical framework for the analysis and based on that we define indicators that can describe the various aspects of the balancing market. Our method is also applicable to markets where the majority of short term trades is not organized through a transparent trading platform, and thus there is no available straightforward indicator to assess the short term market liquidity. We demonstrate our tools and analytical framework on the Croatian market to show how a specific assessment could be conducted.
Winner #1 of the 2017 ERRA Regulatory Research Award.
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