ACER Opinion 02-2021 on the ENTSOG Draft Ten-Year Network Development Plan 2020

PUBLIC

OPINION No 02/2021 OF THE EUROPEAN UNION AGENCY FOR THE COOPERATION OF ENERGY REGULATORS of 3 May 2021 on the ENTSOG draft Ten-Year Network Development Plan 2020

THE EUROPEAN UNION AGENCY FOR THE COOPERATION OF ENERGY REGULATORS, Having regard to Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (ACER), and, in particular, Articles 4(3) and 4(5) thereof, Having regard to Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005, and, in particular, Articles 8(3)(b), 8 (10) and 9(2) thereof, Having regard to the outcome of the consultation with the ACER’s Gas Working Group, Having regard to the favourable opinion of the Board of Regulators of 28 April 2021, delivered pursuant to Article 22(5) of Regulation (EU) 2019/942, Whereas:

1. INTRODUCTION

(1) Pursuant to Article 8(3)(b) of Regulation (EC) No 715/2009, the European Network of Transmission System Operators for Gas (ENTSOG) shall adopt a non-binding Community-wide ten-year network development plan (TYNDP), including a European supply adequacy outlook, every two years. (2) Pursuant to Article 9(2) of Regulation (EC) No 715/2009, ENTSOG shall submit the draft TYNDP, including the information regarding the consultation process, to ACER for its Opinion.

(3) ACER may provide an opinion to ENTSOG, in accordance with the first subparagraph of Article 9(2) of Regulation (EC) No 715/2009, on the draft TYNDP, taking into account the objectives of non-discrimination, effective competition and the efficient and secure functioning of the internal markets in electricity and natural gas.

(4) On 25 November 2020, ENTSOG published part of the draft TYNDP 2020. On 12 January 2021, ENTSOG published the project-specific (PS) Cost-Benefit Analysis (CBA) results of TYNDP projects that intend to apply for the 5th PCI selection process.

(5) From 25 November 2020 until 15 January 2021 , ENTSOG conducted a public consultation on the published part of the draft TYNDP 2020.

(6) On 10 February 2021, ENTSOG submitted the draft TYNDP 2020 to ACER for its Opinion, including the information regarding the public consultation of the draft TYNDP.

2. SUMMARY OF THE DOCUMENT

(7) The draft TYNDP 2020 contains several volumes and Annexes. It includes an executive summary, a system assessment report, an infrastructure report, maps of transmission lines and compressor stations, liquefied natural gas (LNG) terminals, and underground gas storage (UGS) facilities, the project-CBA assessments and several Annexes . This structure is similar to the previous 2018 edition of the TYNDP. The draft TYNDP 2020 is available from a dedicated website , which includes a visualisation platform for the main assessments.

Overview of TYNDP 2020 projects

(8) The TYNDP 2020 contains a total of 262 investment items , of which 151 (58% of total) are transmission lines (including compressor stations), 23 (9%) are LNG terminals and 13 (5%) are UGS facilities. In addition, the draft TYNDP 2020 includes for the first time 75 (29%) Energy Transition (ET) Projects , which are a new category

of projects in the TYNDP. The projects listed in the TYNDP are those projects collected by ENTSOG from project promoters which meet certain criteria (see Section 3.3). The projects listed in the TYNDP are an input and not a result of the modelling exercise ENTSOG performs.

(9) In terms of maturity level, 24% of the proposed TYNDP 2020 investment items are in 9 10 (post) FID status , 23% are in “advanced” status , and the majority of the projects (53%) are in “less-advanced” status . ENTSOG also groups the investment items into sets of “functional projects” by aggregating those investments which need to be jointly implemented for their benefits to materialise .

(10) The overall estimated capital expenditure (CAPEX) for all TYNDP projects seems to be inconsistent across the TYNDP documentation. While the sum of investment items CAPEX in Annex A amounts to €65.6 billion , ENTSOG indicates in the infrastructure report that CAPEX for projects submitted by promoters for inclusion in the TYNDP 2020 amounts to about €97 billion, of which post-FID and advanced projects account for approximately €50 billion. By type (taking as base the €97 billion from the TYNDP infrastructure report), transmission projects cost amounts to almost €66 billion (nearly 70%), followed by €22 billion for ET projects, €6 billion for LNG projects and €1.5 billion for UGS projects.

(11) Table 1 presents the basic statistics on investment items in the TYNDP 2020

Table 1: Summary of draft TYNDP 2020 investments items, projects by type, and CAPEX

Transmission LNG UGS ET Total lines projects TOTAL investment items, of 151 23 13 75 262 which FID 45 6 3 9 63 Advanced 43 9 4 4 60 Less Advanced 63 8 6 62 139 TOTAL functional project 107 22 13 68 210 sets (total number of items included)

TOTAL CAPEX ~66 ~6 ~1.5 ~22 ~97 (TYNDP report, in € billions) As sums of project costs in ~55.4 ~4.2 ~1.7 ~4.3 ~65.6 Annex A, in € million

ENTSOG’s main conclusions

(12) ENTSOG states that “The document identifies potential investment gaps, and how projects submitted to TYNDP mitigate these gaps, following contrasted scenarios reflecting the European Climate and Energy ambitions” and concludes that “[…] the current gas infrastructure is close to completing the internal energy market. Some specific areas still show investment needs to improve interconnections and connection to new supplies, however almost all infrastructure gaps can be addressed in the next five years by projects already initiated, including ability to handle supply route disruptions. It also shows that the gas infrastructure offers exceptional and costefficient opportunities for the EU to develop intermittent renewables and decarbonised gases at large scale.”

(13) ENTSOG underlines the role of the gas system to contribute to a cost-efficient decarbonisation of the energy sector and to a hybrid gas system where methane and hydrogen will coexist, by stating “The TYNDP 2020 shows that the gas system as part of a Hybrid Energy Infrastructure can support the inclusion into the existing infrastructure of renewable and low carbon gases, including hydrogen, in line with the European strategies for Hydrogen and Energy System Integration. These strategies can deliver more efficient, resilient, sustainable as well as faster and cheaper decarbonisation of the European energy sector.”

(14) ENTSOG stresses the key role of the TYNDP 2020 in the on-going 5th PCI selection process led by the European Commission, since projects applying for PCI status must be included in the most recent TYNDP.

3. ASSESSMENT OF THE DRAFT TYNDP 2020

(15) ACER assessed the draft TYNDP 2020 with due consideration of the requirements of Article 8(10) of Regulation (EC) No 715/2009, the objectives set out in Article 4(3) (b) and 4(5) of Regulation (EU) 2019/942 and Article 9(2) of Regulation (EC) No 715/2009, and the degree of implementation of ACER’s recommendations as provided in its Opinion No 14/2019 on the draft TYNDP 2018 . In the present Opinion, ACER

also provides some considerations in view of the 2020 edition of the Gas Regional Investment Plans (GRIPs).

(16) For matters related to TYNDP scenarios, including the methodology for developing demand and supply assumptions and the treatment of uncertainty, ACER refers mainly to its Opinion No 6/2020 on the ENTSO-E and ENTSOG draft TYNDP 2020 Scenario Report. In addition, ACER regrets to notice that ENTSOG failed to take into account ACER’s recommendation to develop and use a slow-economic growth scenario in the draft TYNDP 2020. The lack of such a scenario makes the project assessment results unbalanced and potentially overly optimistic. Some topics which are not covered in the ENTSO-E and ENTSOG Scenario Report, such as the supply price curves used by ENTSOG for modelling, are covered in this Opinion.

Improvements noted

(17) ACER welcomes ENTSOG’s introduction of several improvements for the TYNDP 2020 . ACER also positively notes that ENTSOG continues to apply improvements as implemented in the earlier TYNDPs. More specifically, ACER positively notes the following:

a. A better presentation of the TYNDP via a dedicated website and visualization tools which allow for interactive access to the main TYNDP features.

b. The implementation of a common ENTSO-E and ENTSOG process for the development of scenarios for the TYNDP 2020 and the preparation of a standalone “scenario report” following the practice initiated for the TYNDP 2018.

c. The provision of a window of opportunity for NRAs to check input data for the submitted TYNDP candidate projects at an early stage, in August 2019.

d. The publication of the PS-CBA Project Fiches, and the provision in spreadsheet format of the projects’ results and the results related to CO2 and other externalities’ savings.

e. The increased focus of the TYNDP on Energy Transition aspects and better alignment with the Green Deal decarbonisation goals.

f. The ongoing efforts to implement a better approach to measuring the contribution of gas infrastructure projects to sustainability.

g. The introduction of the “existing infrastructure level”, which reflects today’s gas infrastructure, in order to assess possible infrastructure gaps.

h. The introduction of a mandatory requirement for promoters to submit information related to projects triggered by the incremental capacity process.

Development process and consultation with stakeholders

Stakeholders should be consulted at an early stage.

(18) ACER notes that ENTSOG organised several webinars and workshops for stakeholder consultation together with ENTSO-E for the development of scenarios, and for project promoters for the development of a Practical Implementation Document (PID) and guidelines for the submission of TYNDP 2020 project candidates.

(19) However, beyond these consultations on practicalities related to the submission of projects for the TYNDP and a workshop on supply potentials and market related assumptions , ENTSOG interacted less with stakeholders (other than project promoters) in comparison with previous editions of the TYNDP . ACER is of the view that ENTSOG should more actively attempt to engage stakeholders during the early phases of the TYNDP development on strategic aspects and methodological choices, in order to have a TYNDP better considering the views of network users, market participants and other stakeholders, as required by Article 10 of Regulation (EC) No 715/2009 .

(20) ACER welcomes ENTSOG’s presentation on the draft TYNDP analysis to stakeholders in a dedicated webinar and during the Regional Meetings held for the th 26 5 selection process of PCIs .

The stakeholders’ consultation of the draft TYNDP 2020 received limited feedback

(21) ENTSOG conducted a public consultation on the draft TYNDP 2020 from 25 November 2020 until 15 January 2021 . During the consultation, six responses were received. Of these, one was from an environmental non-profit association, one from an international organisation working on the harmonisation of energy legislation of contracting parties within the EU, two from energy companies, one from an association of gas distributors and one from the European association of gas infrastructure operators.

(22) ACER notes that stakeholders’ feedback depends largely on the type of organisation. Regarding elements for improvement in the TYNDP, some stakeholders provided their individual suggestions:

a. The critical parameters of project analysis (e.g. CBA results) should be presented with more clarity.

b. More focus on sustainability aspects. The new category of ET projects should better substantiate its contribution to emission reductions and renewable energy integration.

c. More focus on cross-sectoral optimisation and assessments. In the view of this stakeholder, the ENTSOs modelling and CBA methodologies should evolve towards deeper cross-sectoral optimisation. The interplay of all potential flexibility options, such as more efficient use of existing infrastructure, demand response, different storage technologies, flexible generation capacities need to be taken into account. There is a suggestion to develop a joint chapter with ENTSO-E to align on the need for the coupling of electricity and gas grids in both TYNDPs. A consistent methodological framework for the assessment of gas ET projects, evaluating interlinkages and redundancies with electricity and heat networks should be developed.

d. More focus on gas developments at distribution level. This stakeholder suggests including the interplay between gas transmission and distribution projects in the

TYNDP, taking into account that most biomethane injections take place at distribution level.

e. More focus and analysis of infrastructure congestions and actual gas flows in the TYNDP.

f. Expanding the current list of ET projects to other type of projects, such as connection of H2 valleys, off-shore H2 and H2 blends projects, de-blending projects, etc.

g. One respondent stresses the need to include the Energy Community Contracting Parties and projects in the geographical scope of the TYNDP.

(23) ACER notes a low level (6) of stakeholders responses to the draft TYNDP 2020, similar to the one observed for the TYNDP 2018 (7 responses), but significantly lower in comparison to the TYNDP 2017, when 21 responses were received. The level of stakeholders’ engagement during the public consultation of the gas TYNDP is much lower than for the electricity draft TYNDP 2020 , to which 22 stakeholders responded. In particular, ACER is concerned by the lack of stakeholders’ engagement and the absence of feedback from gas network users and gas supply and production undertakings during the public consultation.

(24) ACER recommends that ENTSOG:

a. Ensure that the PS-CBA results become available to all stakeholders before the opening of the public consultation .

b. Provide a detailed evaluation of responses to the feedback received by stakeholders in the final TYNDP 2020 publication and to the recommendations contained in the present ACER Opinion.

c. Consider ways for increasing the stakeholders’ interest and engagement in the TYNDP development process, by planning early consultation actions on critical aspects, proactively reaching out to EU associations of gas network users and of producers and suppliers, and making sure that stakeholders’ engagement can influence the TYNDP process and outcome.

Recurrent delays in the TYNDP development process

(25) ACER regrets that the TYNDP 2020 process was significantly delayed compared to its initial schedule , with some activities postponed by more than 6 months. ACER notes that these delays are not attributable solely to ENTSOG. For instance, the TYNDP scenario report, which precedes the gas TYNDP report and which was developed jointly by ENTSOG and ENTSO-E, delayed the process– at least partially -, although it is acknowledged that the COVID-19 crisis also created a challenging environment for delivering on the initially planned timeline.

(26) Delays in the process created uncertainty and time constraints in activities which depend on the availability of the results from the TYNDP 2020 modelling and analytics. For example, the late availability of the results of the PS-CBAs did not allow sufficient time to stakeholders to comment on all documents of the draft TYNDP 2020 during the public consultation. Therefore, ACER calls once again on ENTSOG to look at the reasons for the encountered delays, assess the experience and derive from the lessons learnt a better planning of future TYNDP processes, including foreseeing effective mitigation measures for delays.

(27) All elements of future draft TYNDPs should be released on time for consultation (targeting mid-2022 for the next edition), and for this purpose ENTSOG should look into possibilities to simplify and speed up its internal processes and approvals of documents. Unfortunately, ACER notes that the significant delays in the TYNDP timeline are now a recurring pattern observed in the recent TYNDP processes, and not a one-off exception.

Project data collection

Data collection process, projects code

(28) Data collection of transmission, LNG and UGS projects took place from 30 May 2019 to 28 June 2019 in a transparent and open process, where ENTSOG supported the process for the project promoters’ applications and allowed for the due participation of third-party (non-TSOs) promoters. The submission phase was followed by a check and validation phase during July 2019. Consequently, the draft TYNDP 2020 reflects the status of the projects as of July 2019. Following this process, ENTSOG provided two further project collection windows dedicated to Energy Transition (ET) projects (in August 2019 and from mid-May until mid-June 2020).

(29) ACER positively notes ENTSOG’s consistent use of TYNDP identification projects’ codes from the previous TYNDP, in order to ease the monitoring of the progress of projects between the TYNDP editions.

(30) ACER recommends that in the future ENTSOG strive to implement a single data collection process with a common cut-off date for all types of projects, instead of having a distinct process for the collection of ET projects.

(31) The data collection process and the cut-off date should be moved, to the extent possible, closer to the publication date of the TYNDP, in order to ensure that the TYNDP is based on up-to-date project information, in particular in instances where a national development plan is updated.

Guidelines for inclusion of projects in the TYNDP 2020 to filter out clearly unrealistic projects

(32) ACER notes that the updated Practical Implementation Document (PID) for the TYNDP 2020 is generally in line with the European Commission’s recommendation on “Guidelines on equal treatment and transparency criteria to be applied by ENTSO- E and ENTSOG when developing their TYNDPs”, as set out in Annex III.2 (5) of Regulation (EU) No 347/2013 .

(33) However, ACER notes that the process of updating the PID for the TYNDP 2020 opened in February 2019 was suboptimal. ACER regrets that ENTSOG allowed only one week for comments, which is clearly insufficient. ACER notes that ENTSOG should allow more time to stakeholders to provide input on this matter in future updates of the TYNDP.

(34) ACER notes that ENTSOG required that all investment items included in the draft TYNDP 2020 fulfil the criteria set out in the PID.

(35) ACER notes that the definition and the criteria for including ET projects in the PID are relatively broad . Also, the PID apparently allows for the inclusion on a case-bycase basis of projects which are not related to the production of renewable or/and decarbonised gas and its injection into the transmission grid. ACER would welcome

greater clarity of the criteria used for the inclusion of ET projects in the TYNDP, and increased transparency as regards the case-by-case assessments of ET projects.

(36) ACER recalls its recommendation to ENTSOG as provided in its Opinion on the draft TYNDP 2018, namely that ENTSOG propose adequate updated eligibility guidelines in order to filter out unrealistic projects from future TYNDPs. In this sense, ACER regrets that the PID was ineffective in filtering out unrealistic projects from the draft TYNDP 2020, at least judging by the overall number of collected projects. This number clearly exceeds the reasonable needs for new gas infrastructure, as explained in Section 3.6.1 on infrastructure needs and Section 3.7 on projects vs. market needs.

Energy Transition Projects

(37) ENTSOG’s PID 2020 allows for the submission of energy transition (ET) projects. ACER acknowledges the importance of decarbonising the gas sector in view of the climate objectives of the European Union and the need to identify investments contributing this goal. In this sense, the collection of ET projects gives a first overview of the planned developments. Also, ACER recognises that this is the first time such gas-based energy transition projects have been collected as part of the TYNDP exercise, and thus would see this project collection as a first version which may need to mature over time.

(38) ACER reiterates that, next to the provision by ENTSOG of a detailed categorisation of ET projects by type , two main categories of energy transition gas projects can be distinguished. On the one hand, there are projects for producing bio-methane, synthetic methane and renewable hydrogen. Such projects are essentially on the gas production and supply side and may be considered as indigenous gas production projects. On the other hand, there are projects for reconfiguring, adapting and upgrading the transmission system in order to allow for the injection of bio-methane and hydrogen into the gas transmission networks, i.e. projects pertaining to gas network infrastructure per se, even when considered as enablers of production and supply. In addition, there are projects which may involve both of these two main categories at the same time, by including investments in both gas production facilities and network infrastructure (TSO, LNG or UGS), and a few more projects may not belong to either one of the two main categories.

(39) ACER notes that none of the TYNDP ET projects are included in NDPs, that most of them are at a conceptual state as demonstration or pilot projects or even only as studies, and that it remains in some cases unclear if the projects fall entirely on the production and supply side or are network-related investments. ACER is of the view

that ET projects should be where possible listed and labelled in the TYNDP 2020 as pertaining to these two main categories of projects (production and supply side, network-related and other projects), in addition to the detailed type categories provided by ENTSOG. In addition, ACER finds that the technical features of the ET projects such be collected in greater detail and more standardised way .

(40) ACER notes that ENTSOG initially collected 46 ET projects, but then reopened the collection in May 2020, increasing the overall number of the ET projects in the draft TYNDP 2020 to 75.

(41) The recently published Commission’s legislative proposal for a revision of the TEN- E Regulation focuses on hydrogen infrastructure and grid investments for integrating renewable and low-carbon gases (like biogas and renewable hydrogen) into the existing gas networks. The overall direction of the proposal is generally in line with the ACER-CEER Gas Bridge 2025 and the ACER-CEER Position Paper on TEN-E Revision . In this context, many questions arise as to ENTSOG’s tasks on ET projects under the future EU regulatory framework, the possible role of gas TSOs for promoting hydrogen infrastructure, and the belonging of the so-called “smart gas grids” projects (if located at DSO level) to the European-wide network planning process, just to name a few.

Consistency of NDPs and EU TYNDP

(42) ACER welcomes that ENTSOG collected and provided country-level information about the degree of consistency of the NDPs and the TYNDP projects. For projects not included in NDPs, a justification is provided by the promoters. Approximately 55% of the TYNDP 2020 projects are listed in the relevant NDPs. ACER notes that this level of consistency between the TYNDP 2020 and NDPs is lower than the one achieved for the TYNDP 2018. However, this decrease in consistency between the NDPs and the TYNDP is largely explained by the inclusion in the TYNDP 2020 of 75 Energy Transition Projects , none of which has been included in the most recent

gas NDPs. If Energy Transition Projects are not counted, the level of consistency of NDPs and the TYNDP 2020 is similar to the one observed in the TYNDP 2018.

(43) ACER is of the view that implementing its recent recommendations to increase the consistency of NDPs and the TYNDP will further improve the level of project consistency.

Methodology

3.6.1. Infrastructure needs

(44) ACER appreciates ENTSOG’s system assessment report aimed at identifying potential infrastructure needs on the basis of the so-called “existing level” and “low infrastructure level”.

Sustainability needs

(45) ACER notes ENTSOG’s conclusion that existing European gas infrastructure can support most of the switch from coal and oil to gas and allow, with adaptations, the integration of renewable and low carbon gases. ACER agrees with this conclusion. Therefore, in principle, no specific sustainability need is to be resolved by additional “conventional” gas infrastructure projects (handling fossil natural gas).

(46) ACER is of the view that switching from coal to gas in power generation without additional gas infrastructure projects can bring in the short-term important CO2 savings. In Addition, ET projects have the potential to save a significant amount of CO2 in mid- and long-term. However, ACER calls for caution regarding CO2 savings associated with ET projects, as such savings are subject to uncertainty due to the lack of a credible and widely accepted methodology for validating the claims of the project promoters about potential CO2 savings.

Needs driven by security of supply considerations

(47) ACER agrees with the main conclusion of ENTSOG’s assessment, namely that EU’s gas infrastructure is resilient to high demand situations caused by a 2-week cold spell, a 2-week Dunkelflaute effect, and a peak day. ACER also notes that, with regard to EU’s gas system resilience to supply route disruption, some infrastructure limitations

may prevent certain countries from being supplied (in particular under high demand situation) by sufficient quantities of gas under “Existing” and “Low” infrastructure levels.

(48) ACER invites the NRAs, the TSOs and the Competent Authorities of the concerned countries to take due note of ENTSOG’s findings and consider possible actions addressing the identified risks to security of gas supply in the coming years.

Competition and Market integration needs

(49) ENTSOG’s results show that geographical specificities, in terms of central or peripheral location, as well as the project scale size largely impact the degree to which LNG and interconnection capacity contribute to diversification, with small and midsize countries in Central Europe generally exhibiting healthier values than countries in peripheral locations . The results of the supply dependence assessment, as measured by the minimum annual supply dependence (MASD) indicator for LNG supply, demonstrate the reliance of most of Europe on LNG for achieving a satisfactory degree of diversification of supply and competition.

(50) ACER notes the improvement in ENTSOG’s assessment in terms of dependence on particular basins. ACER notes positively that Europe is not dependent on any single LNG basin.

(51) ACER notes that in all scenarios MASD indicates that Europe relies on Russian gas supply to cover the overall EU gas demand until 2030 and, to a lesser extent, in 2040.

(52) ACER notes ENTSOG’s view that the increasing gas price convergence in the EU generally confirms a better efficiency of the existing European gas infrastructure in terms of backing price convergence. The cross-border projects and network codes implemented during the last 5 years have allowed to physically interconnect most of the Member States and integrate them in the European gas markets. ACER is of the view that the observed price differences would mostly result from cross-border tariffs as well as possible market access barriers, including non-sufficiently competitive hubs, rather than from a lack of gas transportation capacity or interconnections across Member States. However, depending on the supply reliance on LNG, some Member States may be exposed to LNG price spikes in the international markets. During LNG price spike episodes, hub prices of countries more dependent on LNG can decouple from the rest of European hubs prices, and the existing interconnection capacity with neighbouring Member States appears to be insufficient during the duration of the spike to counter this.

ACER assessment of infrastructure needs

(53) ACER appreciates ENTSOG’s assessment of the system needs and gaps provided in the TYNDP 2020 System Assessment Report. In particular, ACER appreciates the way in which the results of the analyses are provided and the availability of an online visualisation platform, which enables a swift overview of results.

(54) However, ACER finds that an analysis of the level of utilization and congestion of existing infrastructure is missing in the TYNDP. ACER deems that the level of use and congestion of existing infrastructure, together with the market demand for additional capacities, should be factored in the assessment of system needs.

(55) ACER also notes the improved resilience of European gas system compared to the TYNDP 2018. ACER shares ENTSOG’s view that the current European gas transmission system is already well-developed and will be even more resilient by 2025, and that therefore not many additions to conventional gas infrastructure will be needed on transmission level in order to address future gas system needs.

3.6.2. Sustainability assessment, CBA implementation and methane emissions

Contribution of gas projects to sustainability

(56) Natural gas will be a needed energy carrier, at least in the short-term, thus facilitating the energy transition in the European Union. However, the gas sector will have to be decarbonised to meet the ambitious decarbonisation targets under the European Green Deal . ACER notes that gas infrastructure must be future-proof and show a positive contribution to the decarbonisation goals.

(57) Measuring the sustainability impact of traditional gas infrastructure projects is challenging and technically complex. The impact largely depends on gas supply and demand changes. Gas use can be more or less CO2 intensive than another primary fuel in each segment of its supply and use. Changes in these patterns are uncertain and generally well beyond the remit and control of infrastructure project promoters. Therefore, it is often difficult to attribute potential CO2 savings to specific infrastructure projects and other sustainability effects. Furthermore, as long as natural gas flows through gas infrastructure also methane emissions along the value chain need to be taken into account.

(58) A net positive contribution to sustainability of gas infrastructure is, as a rule, only possible when gas clearly substitutes more polluting fossil fuels (e.g. oil, coal) or the project handles renewable and low carbon gases (e.g. bio-methane and renewable

hydrogen). However, it is also possible to have a positive sustainability contribution of gas infrastructure when fossil gas use is combined with carbon capture and storage (CCS) or CCS and use (CCSU). On the other hand, gas infrastructure projects which are not used to substitute more CO2 intensive fuels may be neutral or negative in terms of sustainability. Additionally, the sustainability of gas infrastructure is interlinked with electricity generation and supply developments, e.g. gas power generation as a back-up for renewables, contributing to balance mismatches of electricity supply and demand (due to intermittency of power generation or other factors).

(59) The need to implement an improved sustainability assessment methodology as a part of the CBA has been identified by ACER in its Opinions on gas CBA, gas PCI list and in the ACER-CEER Gas Bridge 2025. The goal should be at least to make the sustainability indicator(s) transparent, replicable, objective and accepted by most stakeholders.

(60) A refined sustainability approach, one that accounts for linkages between gas and electricity - and generally other sector integration effects - would require at least a truly integrated gas and electricity market model. It is also important to align the approach to sustainability in gas with the one applied in the electricity CBA methodology, to the extent possible, and incorporate broader energy system integration issues in the evaluation.

(61) ACERs appreciates the on-going efforts and discussions with ENTSOG and the European Commission, and supports the use of an improved sustainability assessment for its application in TYNDP assessment and the next PCI process. ACER notes that the recently published consultancy study for the European Commission presented concrete ideas to improve the sustainability indicators for project evaluation.

(62) In addition, ACER invites ENTSOG to elaborate in greater detail the extent to which TYNDP projects and the infrastructure levels in each of the scenarios provide sustainability benefits. For instance, such elaboration would help to elucidate the benefits which conventional infrastructure (one that still comprises the majority of the TYNDP projects) could bring in terms of sustainability, in the way such benefits are estimated for the ET projects.

Implementation of CBA methodology

(63) ACER notes that the project-specific (PS) CBA results have been published, with some delay, as part of the draft TYNDP 2020. ACER finds that, despite some improvements in the CBA implementation (e.g. provision of main results in spread sheet format), the results are the outcome of what remains mainly a multi-criteria

assessment. ACER regrets that the Economic Performance Indicators (EPI) of CBA assessments are not included.

Methane emissions

(64) The current CBA methodology of ENTSOG does not provide guidelines to project promoters on how to assess methane emissions associated with gas infrastructure projects. ACER notes that methane emissions leaks of gas infrastructure along the midstream gas value chain within the European Union are estimated to be about 0.2% of the total gas sales in the European Union , and that they represent only a fraction of the overall methane emissions across the gas value chain from production to endusers. MARCOGAZ and GIE estimate methane losses, based on global European gas sales, to be in the range of 0.05% in the gas transmission network, < 0.002% at LNG regasification terminals, in the range of 0.1% to 0.2% for gas distribution networks, and 0.01% for UGS. In terms of greenhouse gas emissions (GHG) equivalence, methane emissions associated with gas infrastructure are thus estimated to be modest and amount to about 0.4% of total GHG emissions (in CO2 equivalent terms) within the European Union, of which about 0.1% are related to the gas transmission network.

(65) ACER notes that gas infrastructure may have a limited impact on the overall methane emissions and that the assessment of the emissions may be challenging. Nevertheless, ACER is of the view that properly assessing methane emissions resulting from the construction and operation of specific gas infrastructure (transmission, LNG and UGS projects) is a must. In view of the need to take all possible cost-efficient measures to reduce methane emissions, ACER recommends ENTSOG for future TYNDPs to provide or refer to existing guidelines on the ways of measuring, reporting, verifying, and mitigating methane emissions for TYNDP projects, and to report on such information in the TYNDP project fiches.

3.6.3. TYNDP model and model implementation

General approach to modelling

(66) The modelling used for the draft TYNDP 2020 is based on the nodal network model initially developed by ENTSOG in 2010 (NeMo tool), which has undergone certain improvements and adjustments over time. Details are available in Annex D.1 to the TYNDP 2020, which provides a good overview of the modelling approach used for

TYNDP 2020, with a general description of input, output, assumptions, variables and constants.

(67) The primary objective of the modelling is to identify, via simulations, a feasible flow pattern under which gas supply and demand are balanced at every node, by using the available and expected system capacities represented by the arcs between the nodes. The objective function of the algorithm seeks to achieve such balance at lowest delivered gas cost. Gas prices used for simulations are exogenous to the model. The outputs also depend on the level of infrastructure tariffs.

(68) ACER acknowledges ENTSOG’s detailed description of the assumptions regarding the use of existing transmission infrastructure and project tariffs , including the publication of tariff values, for the TYNDP 2020, following a consultation with stakeholders in July 2019. Additionally, ACER notes that the price spreads used to create contrasted gas supply scenarios have been halved from +-5 €/MWh to +- 2.5€/MWh, which is a more realistic assumption in view of the observed price convergence among the EU Member States during recent years.

Implementation of interlinked model

(69) ACER notes that the implementation of the interlinked model is mostly limited to a joint ENTSO-E and ENTSOG TYNDP scenario development. ENTSOG’s NeMo tool does not allow for dynamic interactions with electricity modelling tools, and vice versa. ACER welcomes the efforts of the ENTSOs to implement a common screening and dual assessment methodology as part of the so-called interlinked model 2.0. However, ACER notes that these developments are not progressing at the desired speed in view of the new Energy System Integration ambitions. ACER regrets that a dual assessment methodology will most likely not be implemented for the TYNDPs 2020, and that the implementation of the electricity and gas CBA methodologies has still not achieved the desired level of alignment and consistent implementation .

(70) ACER welcomes ENTSOG’s plan to implement a new modelling tool offering more functionalities and enabling better integrated assessment of the gas and electricity systems. ACER notes that ENTSOG’s modelling development team started in 2020 to integrate the existing system model and topology in the new modelling, and that in 2021 ENTSOG plans to finalise the implementation of the new tool for its use in the

seasonal outlook simulations and, at a later point in time, for the TYNDP 2022 simulations .

(71) ACER deems that ENTSOs should investigate suitable locations for power-to-gas installations in the system needs analysis of the electricity and gas network development plans with the aim of providing information to potential project developers.

3.6.4. Cost transparency

(72) ACER appreciates the analysis and overview of the investments costs provided in the Infrastructure Report (section 5.6). However, ACER regrets that there is a general worsening of the level of project costs transparency in comparison with the TYNDP 2018. CAPEX have been published in the TYNDP 2020 for 65% of the TYNDP investment items, either as provided by the promoters (50%) or as estimated by using available references (15%). In the previous TYNDP, the project costs were available for 81% of the investment items.

(73) ACER notes that the sum of project investment costs for projects included in Annex A of the TYNDP (€66 billion) deviates significantly from the total investment costs indicated elsewhere in the infrastructure report (€97 billion).

(74) ACER notes that ENTSOG requires a higher level of cost transparency for TYNDP projects that intend to apply for PCI status. ACER reiterates once again its view that maximum reasonable level of cost transparency is recommendable and necessary for all TYNDP candidate projects, including those not intending to apply for PCI status. Applying a different level of cost transparency for various TYNDP candidate projects may run contrary to the equal treatment principle set in Regulations (EC) No 715/2009 and (EU) No 347/2013.

(75) ACER reiterates its view that for future TYNDPs all promoters of regulated infrastructure should provide for each investment item their best estimate of investment cost, the estimated yearly OPEX, the amount of already incurred CAPEX, and the amount of contracted (but not yet incurred) CAPEX. The provision of best cost estimates should be a requirement for all regulated TYNDP projects and not an option for project promoters. For competitive investment projects, like some ET projects appear to qualify, ACER would welcome that cost estimates are provided at least in an aggregated form.

(76) In addition, this lack of transparency on cost data for gas projects is in direct contrast to the electricity TYNDP , where CAPEX and annual OPEX costs values are provided and published for each investment item.

3.6.5. Comparison with previous TYNDPs

Projects commissioned

(77) ACER welcomes the provision of information on projects included in the TYNDP 2020 which have been completed by June 2019, and which are expected to be commissioned in the near future. ACER notes that 10 investments listed in TYNDP 2018 were already completed by June 2019 and have not been submitted to TYNDP 2020. In addition, 21 investments submitted to the TYNDP 2020 are expected to be commissioned by 31 December 2020. ACER deems that ENTSOG should consider verifying and publishing all projects which have been commissioned as of end of 2020 for the finalisation of the TYNDP 2020 , in order to provide a more accurate picture of projects commissioned during the last 2 years. Projects which have already been commissioned by end 2020 should not be included as part of the TYNDP 2020 since they should be already in operation or close to start operation.

Evolution of number of projects in the TYNDPs

(78) ACER notes that the number of “traditional” TYNDP projects and investment items has been reduced in the last editions, from 279 items in 2015, to 234 in 2017, 207 in 2018 and 187 in 2020. This is mainly due to the completion, cancellation, or withholding the re-submission of several projects. This reduction (-33% over the period 2015-2020) in the number of “traditional” projects is not proportionate to the sharp reduction (-58% from 2015 to 2019) in the number of gas projects included in the PCI lists, and may be at odds with the current objectives of the Green Deal and the proposal for a revised TEN-E Regulation which foresees a very limited role for “conventional” gas infrastructure projects.

(79) ACER would encourage a further careful and critical review of the merits of the high number of projects in the TYNDP 2020 and in future editions, considering that the current FID projects and advanced projects expected for commissioning for 2025 may well close all existing infrastructure gaps, as confirmed by ENTSOG’s analysis.

(80) ACER recalls that the projects listed in the TYNDP are an input to the process and not a result of the modelling exercise which ENTSOG carries out. Therefore, many of the TYNDP projects do not match any apparent need, as identified by ENTSOG in the infrastructure needs assessment. In particular, ACER notes that the 77 transmission,

LNG and UGS projects under the so-called “less-advanced” infrastructure level apparently do not address any infrastructure need identified by ENTSOG’s analysis, and that therefore their inclusion in the TYNDP 2020 is dubious.

Reverse progress of projects

(81) ACER notes the “reverse progress” of 2 projects included in the TYNDP 2020 which are now listed as “planned” rather than as “FID status declared”, and 12 projects which have shifted from “advanced” to “less-advanced” status, mainly due to delays and rescheduling. ACER notes the explanations provided in the TYNDP regarding the “reverse progress” of these projects. However, ACER finds it necessary to explain in greater detail the reverse progress of projects, and calls on project promoters to prepare and report from the very start realistic, coherent and prudent implementation plans.

(82) ACER reiterates its invitation to ENTSOG to consider developing, based on its experience in monitoring the progress of projects, metrics that would provide early warnings about unrealistic project timelines or conceptually doubtful projects, especially ones that do not address a reasonable infrastructure need, such as projects not addressing needs in previous TYNDPs and not progressing in the meantime.

Projects candidates vs market needs

(83) ACER appreciates that ENTSOG made obligatory for promoters the provision of information related to the incremental capacity process, in order to include in the TYNDP a list of projects triggered by the market (commitments from market players for additional transportation capacity).

(84) ACER notes that during the annual capacity auctions, the TSOs which offered incremental capacity did not receive any binding commitments from network users during the last incremental capacity process cycle for 2017-2019 , and that therefore no incremental capacity project proceeded to implementation. ACER stresses that gas network expansions should be primarily driven by the market (by demand for capacity). ACER notes the presence of a significant discrepancy between the high number of project proposals put forward by project promoters in the TYNDP and the lack of firm commitments of network users to finance any capacity increases. This discrepancy may be a sign that many proposed projects could become stranded in the mid- and long-term if actually implemented.

(85) ACER notes that by early 2021, ENTSOG will have access to preliminary information on the status of the incremental capacity process initiated in 2019 (non-binding phase). ACER would appreciate that ENTSOG provide an update on the outcomes of this non-binding phase in the final TYNDP 2020. Additionally, ACER recalls its recommendation from the ACER report on incremental capacity to provide better tracking information of the incremental capacity process.

(86) Moreover, the support of public institutions such as the European Investment Bank (EIB) to traditional infrastructure projects will come to an end soon . The public support from the EU (e.g. CEF-energy funds), which has dramatically diminished in recent years for gas projects, is projected to be very scant or cease altogether in view of the new priorities under the Green Deal and the proposal of a revised TEN-E Regulation, which excludes “conventional” gas infrastructure projects that handle fossil gas. In addition, ENTSOG and many other parties foresee a significant reduction of natural gas demand in Europe from the year of 2030 onwards. In this context, it is difficult to understand why the TYNDP includes a large portfolio of “conventional” gas infrastructure projects which clearly exceeds the reasonable needs for such infrastructure.

Gas Regional Investment Plans

(87) Pursuant to Article 12 of Regulation (EC) No 715/2009, TSOs shall establish regional cooperation within ENTSOG and publish Gas Regional Investment Plans (GRIPs) every two years. Based on the GRIPs, TSOs may take investment decisions. Pursuant to Article 5(8) of Regulation (EU) 2019/942, ACER shall monitor the regional cooperation of TSOs, and take due account of the outcome of such cooperation when formulating its opinions, recommendations and decisions.

(88) During 2020, three out of the six GRIPs were published on ENTSOG’s website. No GRIPs reports have been published for BEMIP and South-North Corridor since 2017,

and there is no explanation available at ENTSOG’s site on the status of the BEMIP, South-North Corridor and South GRIP reports .

(89) ACER acknowledges that elaborating the GRIPs is a complex and resource-intensive task for TSOs which, however, appears to be of lesser interest for most NRAs and stakeholders in comparison to the TYNDP and the NDPs. Therefore, TSOs and/or ENTSOG should collect topics of possible interest to NRAs and stakeholders before developing the GRIPs, in order to increase NRA interest.

(90) The GRIPs may constitute a good tool for cooperation among TSOs, for discussing and exchanging information on technical matters and seem to be more relevant for analyses of issues of regional dimensions (such as L/H gas conversion in North-West Europe, or regional plans for decarbonisation of the gas sector).

(91) ACER notes that there is an obligation of publishing a GRIP every other year pursuant to Article 12 (1) of Regulation (EC) No 715/2009, and that such publication could entail, as a minimum, a short update on the status of regional TSO cooperation in the region. Therefore, ACER calls for the publication of a GRIP for those regions where no GRIP has been published during the last 2 years in order to be compliant with regulatory requirements. ACER notes that the concise 2019 GRIP for the South region, which was published on the South TSOs websites in May 2020, should also be made available online on ENTSOG’s site.

4. RECOMMENDATIONS

(92) In view of the foregoing, ACER recommends the following to ENTSOG:

Short-term recommendations (for the final TYNDP 2020)

(93) ACER urges ENTSOG to consider for the final version of the TYNDP 2020:

a. The comments and remarks of NRAs on the TYNDP 2020 projects, as contained in Annex I to this Opinion.

b. The publication of a summary document indicating how feedback from the public consultation and from ACER’s Opinion are taken into account for the final TYNDP 2020 and will be considered in future TYNDPs.

c. Including the Economic Performance Indicators in the Project Specific CBA assessments results.

d. Classifying and labelling the ET projects into two main categories, i.e. project pertaining to the supply/gas production side projects (in principle competitive activities) and network related investments to enable injection of decarbonised and low carbon gases in the network, providing further sub-labels where appropriate.

e. Verifying and publishing all projects included in the draft TYNDP which have been commissioned as of end of 2020.

Mid- and long-term recommendations (for the TYNDP 2022)

(94) ACER encourages ENTSOG to consider for future TYNDPs:

Scenarios, timing and consultation of next TYNDP

a. Implementing ACER’s recommendations regarding scenarios, as provided in its Opinion No 6/2020.

b. Improving the planning process, in order to avoid the recurrent delays in the development and the release of TYNDPs. The draft TYNDP should be published for stakeholders’ consultation earlier, preferably by mid-year (June 2022 for next edition) instead by the end of the year, also in order to better align the TYNDP and the PCI selection processes.

c. Increasing stakeholders’ engagement in the TYNDP development process and during the draft TYNDP consultation.

Implementation of CBA and sustainability assessment

d. Improving the implementation of the CBA 2.0 methodology and its application regarding the monetisation of benefits, the provision of Economic Performance Indicators in the CBA results, an assessment framework for ET projects and a more refined, in-depth approach to the sustainability dimension.

e. Requiring CBA project assessments for all TYNDP projects instead of only for projects having declared their intention to apply for PCI status, at individual project level.

f. Requiring promoters to provide the same (maximum) level of cost transparency for all TYNDP regulated projects, irrespective of their intention to apply for PCI status.

g. Analysing the level of utilisation and contractual and physical congestion of interconnection points , as an essential parameter to be taken into account when analysing the need for additional gas infrastructure, in order to avoid the risk of stranded or inefficient investments.

Interlinked assessment with electricity network planning

h. Implementing improvements leading to the development of a consistent and interlinked electricity and gas networks and market model, in pursuit of greater alignment and integration of analyses with the electricity sector, in compliance with regulatory requirements and sector integration ambitions, and rolling out of modelling tools allowing for sector integrated assessments.

i. Identify, jointly with the electricity TYNDP, suitable locations for power-to-gas installations in the system needs analysis.

Align the number of conventional gas projects with needs and market interest

j. Better incorporating the low market interest shown for developing additional capacities during the incremental capacity process in the infrastructure needs assessment.

k. Including a number of “conventional” gas infrastructure projects in the TYNDP only to the extent commensurate to the assessed needs. This could be achieved up-front by refocusing the Practical Implementation Document in order to flag and filter out unrealistic projects (e.g. not addressing any need in previous TYNDP(s) and/or not progressing during the last 2 years) during the data collection process. Projects with unrealistic timelines or doubtful projects that do not address any apparent need should not be included in the TYNDP.

Network adaptations for decarbonised gases, methane emissions

l. Considering focusing more on the necessary adaptations of the gas infrastructure to enable the injection of higher shares of renewable and decarbonised gases (blending of hydrogen, synthetic methane, and bio-methane) and the costs, implications and challenges associated with such adaptations.

m. Considering ways for analysing and addressing the issue of methane emissions from transmission pipelines, compressor stations, LNG terminals and UGS facilities in the TYNDP.

HAS ADOPTED THIS OPINION:

1. ACER notes limited improvements and evolution of the draft TYNDP 2020 in comparison to previous TYNDP editions in terms of process and methodology, and welcomes the presence of a new group of projects with specific features not present in earlier editions of the TYNDPs, namely the energy transition (ET) projects. Looking forward, ENTSOG should improve the definition of ET projects, the clarity of the criteria used for its inclusion in the TYNDP as well as the assessment framework.

2. ACER finds that the draft TYNDP 2020 assessments and the projects included in it generally contribute to the objectives of effective competition and secure functioning of the internal gas market referred to in Article 8(2) of Regulation (EC) No 715/2009. However, ACER notes that the TYNDP 2020 does not sufficiently contribute to the objectives of non-discrimination and efficient functioning of the market, mainly due to the following shortcomings:

a. Shortcomings in the applied methodologies, such as a lack of a complete quantitative needs assessment and doubtful quality of the CBA 2.0 methodology and its application, which still requires significant improvements, especially in order to monetise all benefits at individual project level, to demonstrate that benefits exceed costs at individual project level, to properly assess the contribution of projects to sustainability, and to provide adequate project Economic Performance Indicators. A net positive contribution of gas infrastructure to sustainability is, as a rule, only possible when gas clearly substitutes more polluting fossil fuels (e.g. oil, coal) or the project handles renewable and low carbon gases. A more refined sustainability assessment, accounting for dynamic linkages between gas and electricity would require at least a truly integrated gas and electricity market model.

b. The lack of analysis of the existing and forecasted use of gas infrastructure, including the expected level of future physical congestion, which is a critical criterion to take into account when analysing the need of additional gas infrastructure. The lack of appetite of network users to develop additional capacities via incremental capacity infrastructure projects does not fit well with the large portfolio of investment items included in the draft TYNDP. In this sense, ENTSOG should develop criteria to flag and filter out unrealistic projects from the TYNDP.

c. The asymmetric treatment of candidate TYNDP projects, whereby the assessment of some TYNDP projects is incomplete since they are not subject to CBA, while other projects are subject to CBA, and consequently creating within the TYNDP classes of projects for which the level of analysis and the quality of information differ.

- SIGNED -

Fоr the Agency The Director

C. ZINGLERSEN

Annexes: Annex I – NRA comments on draft TYNDP 2020 projects

Annex I – NRA comments on draft TYNDP 2020 projects

By 16 March 2021, 21 NRAs provided input, of which: -13 NRAs had comments on the TYNDP 2020 projects: NRAs of Austria, Czech, Croatia, Cyprus, Estonia, France, Greece, Italy, Hungary, Latvia, Malta, Portugal, Spain. -8 NRAs had no comments on the TYNDP 2020 projects: NRAs of Belgium, Germany, Ireland, Lithuania, Luxembourg, Romania, Slovenia, Sweden.