We are in a crisis for which there is no precedent. It is important to avert a gas shortage and to minimize the damage to the economy and to all of us. For months we have been working as Federal Network Agency hard to avoid the gas emergency. At the same time, we are preparing for it if it does happen. We model scenarios, constantly exchange ideas with industry, trade unions and science and call for gas savings.
In this situation we cannot afford to leave any instrument unused. So we have in common with that Federal Ministry of Economics and the Trading Hub Europe (THE) developed a control energy product in exchange with the industry, which is also known as the “gas auction model”. In view of the major problems, however, expectations have arisen that the control energy product cannot and should not meet.
This is how the new gas auctions work
The control energy product comes into effect when a gas shortage becomes apparent, i.e. when the short-term forecasts show that there is less gas than is consumed. In short, it works like this: Industrial customers submit a bid for the price at which they are willing to reduce their gas consumption. Starting with the lowest bid, THE can then purchase gas from the companies until the relationship between available gas volume and gas consumption is in balance again.
In contrast to classic “auctions”, there is no deadline for either bidding or allocation. The input mask is always open, the lot size is variable, and smaller quantities can also be offered. The lead time for the shutdown can also be freely selected by the provider. The conditions are very deliberately designed to expand and facilitate access for industrial consumers. The focus here is not only on the requirements of the gas network, but also on the greatest possible flexibility for the bidders. THE published the contract terms and the description of the control energy product last week. It is called “Load Reduction” (LRD) here. This product will be launched on October 1st of this year, just in time for the heating season. Bids can be submitted from this Thursday.
Of course, extensive use of the new control energy product is not desirable either. It would be a testament to the strained situation that our gas supply will find itself in, and it may only be about damage limitation. The decisive advantage of the model, however, is that it enables a more efficient shutdown sequence than orders from the Federal Network Agency could achieve. We are convinced that those who purchase the gas, i.e. the companies, can judge better than an authority where a gas reduction would do the least harm. And this is exactly what they can signal through their bids.
Avoid emergency level for gas
For the companies, the added value is obvious: if they win the bid, they get paid. You determine the price, the time, the volume and the duration of the shutdown yourself. In addition, there are short-term adjustment options for the companies, since they can remove submitted bids from the platform at any time and enter them again the next morning, for example.