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Drafting a Target Model for a Liberalized Finnish Gas Market – EXXETA Energy Blog

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Drafting a Target Model for a Liberalized Finnish Gas Market

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Gas Market|Regulation

The Finnish state-owned energy company Gasum Oy commissioned EXXETA to carry out an extensive consulting project on new regulatory processes to support Gasum Oy in preparing for a liberalized and EU-compliant future gas market model. After three intensive project phases, we successfully completed our draft models and analyses – which we conducted from the perspective of the Finnish gas market as well as from the perspective of our client – and condensed them into recommendations for implementation of the required processes.

The Motivation

Gasum Oy is a vertically integrated energy company and the major market player in the Finnish gas industry. The firm currently performs various market roles at the same time. It is the only market participant importing natural gas to Finland, acts as transmission system operator (TSO), whilst also operating in the segments of natural gas transport and trade, complemented by its subsidiary Kaasupörssi Oy.

In 2009 the European Commission adopted new regulatory provisions (the so-called “Third Energy Package”) that, among other things, were aimed at reforming the processes underlying the European gas and electricity markets and harmonizing them across the EU. The Third Energy Package introduced a requirement to establish Network Codes, implementation and application of which is mandatory for all EU member states and their energy companies. Finland, which currently has no direct connections to any other EU member state, therefore has been exempted from applying European legislation so far. Due to the planned construction of the Balticconnector (a gas pipeline connecting Finland and Estonia) and the Gas Interconnection Poland-Lithuania (GIPL, a gas pipeline connecting Poland and Lithuania), this is going to change. The Finnish Ministry of Economic Affairs and Employment is planning to introduce domestic legislative changes in the course of these projects, with the changes to be incorporated into the Natural Gas Market Act (NGMA). The primary focus of these efforts is to ensure that the Finnish market mechanisms are compliant with the relevant European directives. With work on the new NGMA underway, Gasum Oy decided to launch a project which was to define a new, liberalized gas market model in compliance with EU legislation whilst also analyzing its impact on the business of Gasum Oy and deriving recommendations for action.

The Challenge

Given that the new Finnish gas market model is to be implemented by 1 January 2018, the project’s timescale provided a particular challenge. The project team were to record and analyze the current state of existing market mechanisms as well as Gasum‘s business and IT processes, familiarize the Gasum staff with the rules underlying liberalized markets, define the target model and examine the impact of this target model on Gasum itself, all within a timespan of no more than five months. When planning the project’s schedule, it therefore had to be taken into account that there would be some overlap between the individual phases. Right at the start of the project we had to ensure that our Finnish colleagues were given an understanding of the processes underlying liberalized gas markets. In view of Gasum‘s monopoly position and the integrity of all processes this was the essential foundation of our subsequent work. When it came to defining the target model for the Finnish gas market, the diverse interests of various stakeholder groups had to be taken into consideration so as to ensure that their requirements would be duly reflected. In addition, the draft model was to be incorporated into the new NGMA, the fi nal draft of which was to be completed by the end of 2015.

The Solution

The EXXETA consulting project was divided into three phases. During the project initiation phase, we worked with our client to plan the project together. The main tasks at this stage were to define the project’s goal, decide on the methodological approach and describe the required milestones. It was especially important to leave some room in the schedule that would allow the project team to respond to unforeseen developments, most notably changes resulting from the NGMA drafting process, which was taking place in parallel. The project implementation phase was subdivided into five work packages in line with the project’s goals. The project work as such was delivered using EXXETA’s well-proven project management methodology, which was applied strictly throughout the project. This allowed us to describe the project’s progress and outline the remaining planned steps in a transparent manner at all stages. In the final project phase, we produced a document based on our analyses of the draft models that describes the impact of the model changes on Gasum, the potential risks from the perspective of the Finnish gas market as well as from the perspective of Gasum including a risk assessment, and a recommended roadmap for implementation.

The project was completed to the utmost satisfaction of both Gasum and EXXETA.

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