Contingency arrangements approved for gas shipper exits

Ofgem has approved contingency arrangements for the purchase of gas for suppliers left without a shipper following a market exit.

The decision comes after CNG Group – a gas shipper for a number of small suppliers – left the wholesale market in November due to the financial impact from the earlier failure of some of its customers.

The new arrangements will be introduced through a modification to the Uniform Network Code (UNC), which was proposed by National Grid the following month.

Ofgem said there are already arrangements in place to deal with the situation in which a supplier is unable to find a replacement before its gas shipper exits the market.

The supplier is assumed to have delivered no gas onto the system and the resulting shortfall is filled by National Grid in its role as residual balancer for the gas transmission network through within-day and day-ahead trades. The supplier then pays for this gas through imbalance charges.

However, Ofgem said procuring large volumes of gas in this way is likely to be uneconomical and could inflate imbalance costs for all shippers. The proposal document noted that it could also cause cashflow issues for National Grid.

The modification UNC791, which was granted urgent status by Ofgem, will instead allow National Grid to temporarily procure gas on behalf of a supplier until it is able to appoint a new shipper. In this new role of Contingency Procurer of Supplier Demand, National Grid will only be able to purchase gas at the National Balancing Point price but will not be limited to conducting within-day and day-ahead trades.

This role will “switch on” when a gas shipper is terminated, the supplier it served has agreed to take on responsibility for the imbalance charges it would otherwise have paid, and the volume of gas to be procured by National Grid, after accounting for any expected trades, exceeds 10,000,000 kWh in a single day.

It will “switch off” when the volume of gas to be procured for shipper-less sites falls below 100,000 kWh in a day – most likely because the supplier has found a new shipper or new gas shipping arrangements have been put in place by a Supplier of Last Resort.

National Grid will be required to inform all network users when the role has been switched on or off but not the volumes or prices at which it has bought or sold gas to enable it to maintain a competitive procurement strategy.

By separating the arrangements for shipper-less suppliers from the imbalance process and giving National Grid more flexibility over how it procures gas on their behalf, Ofgem said the modification will prevent market distortions and lower costs for all market participants, and shipper-less suppliers in particular.

The modification will take effect on Wednesday (2 March).

Ofgem approved another UNC modification in November that introduced stopgap arrangements to allow suppliers to procure gas for shipper-less sites through existing relationships with other gas shippers.

CNG’s exit from the wholesale market was blamed by Zog Energy for its subsequent failure and also led Good Energy and Outfox the Market to become their own gas shipper.