Increasing efficiency through market-based cross-border procurement of gas-balancing services in Europe

The gas-balancing mechanism makes up the interface between the users of the network and the transmission-system operator. The latter is responsible for the reliable and efficient operation of the network, whereas the former actually cause imbalances in the system. To deal with these imbalances the operator needs flexibility that can be offered by the network through line-pack flexibility or has to be procured from flexibility providers. Current procurement mechanisms often concern long-term and non-market-based agreements for domestically produced flexibility, likely leading to inefficiencies and raising barriers for entrants in the flexibility market. Market-based procurement of balancing services, on the other hand, relies on bids, specifying amount and price, submitted by all providers of flexibility and these bids, then, form a merit order from which the system operator can call the required amount of flexibility at the most efficient cost. Moreover, cross-border procurement of flexible gas enlarges the pool of flexibility providers and, as is demonstrated for hypothetical gas systems in two geographically adjacent regions, increases overall efficiency of the combined operators. Efficiency gains, however, are not distributed equally among the regions. Furthermore, border capacity should be strengthened when necessary because gas is pipeline-bound and trade cannot exceed available capacity. (C) 2012 Elsevier Ltd. All rights reserved.