The entry‐exit model is not defined in the EU gas directives or regulations, however, these legal acts allow for describing constituent features thereof.
Hence, the entry-exit system is a “market access model, which allows network users to book capacity rights independently at any entry and any exit point of the system, thereby creating a dynamic way to transport gas through zones, allowing an easier reach to multiple end-users” (ACER Report of 5 April 2019 on the conditionalities stipulated in contracts for standard capacity products for firm capacity, p. 3).
Another ACER’s document “The internal gas market in Europe: The role of transmission tariffs” (6 April 2020, p. 13) also explains that “the entry-exit market model allowed network users to book gas capacity independently at entry and exit points. In this way, gas transmission moved from contractual paths to entry-exit zones”.
Study of 3 April 2019 on the conditionalities stipulated in contracts for standard capacity products for firm capacity sold by gas TSOs (Final Study, Grant Thornton Tax and Business Advisory Solutions SA., in association with REF-E SRL, VIS Economic & Energy Consultants Consulting Services S.A., Grant Thornton Advisory, Baringa Partners LLP, p. 9) observes that the implementation of an entry‐exit system has the following key features:
- decoupled contracting and utilisation of capacity at the system’s entry and exit points, so that network users can freely use any entry and exit point of the system, and are not obliged to contract specific paths within the transmission system;
- unrestricted access to the Virtual Trading Point (VTP), for all network users that have booked firm capacity at either an entry or exit point;
- free allocability of standard firm capacity products, including short‐term products (daily, within‐day), to access and hence facilitate trading at the VTP.
This new market design has been created by the Third Energy Package.
Gas transmission and its pricing plays a key role in the success of the entry-exit model.
The reference to the entry-exit gas system can be found in Recital 19 and Article 13(1) of the Gas Regulation (Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on the conditions for access to the natural gas transmission networks), which read, respectively:
- “it is vital that gas can be traded independent of its location in the system. The only way to do this is to give network users the freedom to book entry and exit capacity independently, thereby creating gas transport through zones instead of along contractual paths”;
- “Tariffs for network users shall be non-discriminatory and set separately for every entry point into or exit point out of the transmission system.”[...] “Member States shall ensure that [...] network charges shall not be calculated on the basis of contractual path”.
In the said document of 5 April 2019 the EU energy market regulator expresses on opinion that the entry-exit model “puts an end to trading along contractual paths”.
According to the ACER:
“Full access to the VTP in an entry-exit system is considered crucial for a well-functioning gas market. The VTP allows gas trading, virtual title products transfer within the entry-exit zone and underpins the trading activity that takes place in the organized markets. The VTPs put an end to traditional trading “at the flange”, which was bilateral trading at physical points of the system. Firm capacity products allow for the effective use of an entry-exit system, since firm products allow network users freely and independently to book and allocate capacity at entry and exit points and reach the VTP on a firm basis.”
However, Recital 4 of the Gas Directive (Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas) notes that “at present there are obstacles to the sale of gas on equal terms and without discrimination or disadvantages in the Community. In particular, non-discriminatory network access and an equally effective level of regulatory supervision in each Member State do not yet exist”.
The ACER conclusion is that at present the conditionalities stipulated in contracts limit the access to the full entry-exit system, and deviate from the underlying gas market design foreseen by the Gas Directive and the Gas Regulation, in terms of full network access and access to greater liquidity.
Nevertheless, new editions of the EU Gas Directive and Gas Regulation seem to remediate the above shortcomings.
Entry-exit gas systems are more prominently evoked in Recitals 11 - 13 and 18 of the European Commission Proposal of 15 December 2021 for a Regulation of the European Parliament Parliament and of the Council on the internal markets for renewable and natural gases and for hydrogen (recast - COM/2021/804 final), which read:
“(11) Arrangements on third party access should be based on the principles laid down in this Regulation. The organisation of entry-exit systems, which enable a free allocation of gas on the basis of firm capacity, was welcomed by the XXIV. Madrid Forum already in October 2013. Therefore a definition of entry-exit system should be introduced and the integration of the distribution system level in the balancing zone be ensured, which would help to achieve a level playing field for renewable and low carbon gases connected to either the transmission or distribution level. Tariff setting of distribution system operators and the organisation of capacity allocation between the transmission and distribution system should be left to the regulatory authorities on the basis of the principles enshrined in [recast Gas Directive as proposed in COM(2021) xxx].
(12) Access to the entry-exit system should be generally based on firm capacity. Network operators should be required to cooperate in a way that maximises the offer of firm capacity, which in turn enables network users to freely allocate the gas entering or exiting on the basis of firm capacity to any entry or exit point in the same entry-exit system.
(13) Conditional capacity should only be offered when network operators are not able to offer firm capacity. Network operators should define the conditions for conditional capacity on the basis of operational constraints in a transparent and clear manner. The regulatory authority should ensure that the number of conditional capacity products is limited to avoid a fragmentation of the market and to ensure compliance with the principle of providing efficient third-party access.
(18) To enhance competition through liquid wholesale markets for gas, it is vital that gas can be traded independently of its location in the system. The only way to do this is to give network users the freedom to book entry and exit capacity independently, thereby creating gas transport through zones instead of along contractual paths. ⇨ To ensure the freedom of booking capacity independently at entry and exit points, tariffs set for one entry point should therefore not be related to the tariff set for one exit point, and vice versa offered for these points separately and the tariff should not bundle the entry and exit charge in a single price".
Also Arricle 6(6) of the said draft Regulation states that as of 1 January 2031 hydrogen networks shall be organised as entry-exit systems.
There is also new Recital 97 in European Commission Proposal of 15 December 2021 for a Directive of the European Parliament Parliament and of the Council on common rules for the internal markets in renewable and natural gases and in hydrogen (COM/2021/803 final), which explains as follows:
“(97) Producers of renewable and low-carbon gases are often connected to the distribution grid. To facilitate their uptake and market integration, it is essential that they obtain unhindered access to the wholesale market and the relevant virtual trading points. Participation in the wholesale market is determined by the way in which the entry-exit systems are defined. In several Member States, producers connected to the distribution grid are not part of the entry-exit system. Therefore, the access of renewable and lowcarbon gases to the wholesale market should be facilitated by providing a definition of an entry-exit system and ultimately ensuring that production facilities connected to the distribution system are part of it. In addition, Regulation [the recast Gas regulation as proposed in COM(2021)xxx] provides that distribution system operators and transmission system operates are to work together to enable reverse flows from the distribution to the transmission network or alternative means to facilitate the market integration of renewable and low carbon gases”.
In legal catalogue of definitions in Article 2 of the above said Proposal for a Gas Directive a new point 53 has been added, which defines an ‘entry-exit system’ as "the aggregation of all transmission and distribution systems to which one specific balancing regime applies".
This is complemented with a new set of further definitions in points 54 - 59 (which seem necessary to obtain a full picture):
"(54) ‘balancing zone’ means an entry-exit system to which a specific balancing regime applies;
(55) ‘virtual trading point’ means a non-physical commercial point within an entry-exit system where gases are exchanged between a seller and a buyer without the need to book transmission or distribution capacity;
(56) ‘entry point’ means a point subject to booking procedures by network users or producers providing access to an entry-exit system;
(57) ‘exit point’ means a point subject to booking procedures by network users or final customers enabling gas flows out of the entry exit system;
(58) ‘interconnection point’ means a physical or virtual point connecting adjacent entry-exit systems or connecting an entry-exit system with an interconnector, in so far as these points are subject to booking procedures by network users;
(59) ‘virtual interconnection point’ means two or more interconnection points which connect the same two adjacent entry-exit systems, integrated together for the purposes of providing a single capacity service".
ACER-CEER document of 3 June 2022 “Reaction to the European Commission’s Hydrogen and Decarbonised Gas Market Package” recommended that the legislators clarify the scope of entry-exit systems to avoid misinterpretations and over-regulation of the distribution level.
According to the regulators:
- to ensure participation of local producers in the market, alternative solutions to full integration of transmission and distribution levels (for example, regarding balancing) should be considered.
- Also, the proposal should clarify that it does not have consequences on the perimeter of capacity allocations, and that, for tariff purposes, only the transmission level falls within the scope of the network code on harmonised transmission tariff structures for gas (TAR NC).
- In addition, the definitions for ‘entry-exit system’ and ‘balancing zone’ should be made consistent.
Proposal for a Directive of the European Parliament Parliament and of the Council on common rules for the internal markets in renewable and natural gases and in hydrogen, COM/2021/803 final
Proposal for a Regulation of the European Parliament Parliament and of the Council on the internal markets for renewable and natural gases and for hydrogen (recast), COM/2021/804 final
Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Gas Directive)
Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on the conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (Gas Regulation)
Upgrading the gas market - Regulatory and administrative requirements to entry and trade on gas wholesale markets in the EU, Final Report, May 2020
ACER Report of 5 April 2019 on the conditionalities stipulated in contracts for standard capacity products for firm capacity
Study on the conditionalities stipulated in contracts for standard capacity products for firm capacity sold by gas TSOs, Final Study, Grant Thornton Tax and Business Advisory Solutions SA., in association with REF-E SRL, VIS Economic & Energy Consultants Consulting Services S.A., Grant Thornton Advisory, Baringa Partners LLP, 3 April 2019