Draft Gas Supply Act (GasVG): What can gas providers expect?
The consultation process for the Swiss natural gas supply law will run until 14 February 2020. On a day normally associated with love, can gas providers expect any love from the pending legislation? It is essential to define requirements for reliable natural gas supply and more closely align Swiss and EU regulations, but the bill also raises questions about market deregulation.
While supply security and legal certainty are two central points defined and outlined in the latest draft gas law, the draft text also covers issues such as energy transition, costs and market deregulation. In our view, the current proposal in relation to these latter three areas does not yet appear fully mature.
Energy Transition / Dismantling the gas infrastructure
The first areas of obvious concern in the current draft law is the reference to dismantling the gas infrastructure. The reason given for the closure of parts of the gas network is an expected decline in gas consumption by private households to achieve energy and climate targets. In our view, the gas grid is not out of date or in need of dismantling. It will be a useful element in the energy transition as it is the enabler for the electrical and gas sector coupling. After all, why shouldn’t electricity be linked to the gas grid - with synthetic gases from renewable electricity – in the future?
The draft gas law includes three reasons why a full market liberalisation is challenging: (i) an expected reduction in the gas volume, (ii) the need for gas infrastructure modernisation and (iii) the long-term planning period in infrastructure questions. We would question the extent to which these arguments make sense. Is this not a missed opportunity to accelerate sector coupling? Infrastructure upgrades and asset depreciation also exist in the electricity sector, but there we strive for complete market liberalisation. Why can’t we do the same in the gas industry?
Costs of the Transitgas pipeline
One of the major costs in the Swiss gas sector is the cost of the Transitgas pipeline. Long-term gas transit contracts, which currently cover a significant portion of the Transitgas costs, are expected to end in the near future. Once these contracts run out, the costs for the Transitgas pipeline will need to either: (i) generate significant revenues from the gas price spread between neighbouring countries or (ii) increase its grid shipping costs for gas consumed in Switzerland. In the event of underutilisation and/or a low price spread between neighbouring gas wholesale markets, it remains unclear who will pay the missing revenue to cover the costs of the Transitgas infrastructure.