Update on the ROHUAT project for incremental capacity

Update on the ROHUAT project for incremental capacity

1 RO-HU-AT - a pilot project for incremental capacity GRI SEE 13 December 2016, Bucharest Starting Point 2014 Network users indicated non-binding demand for long term transportation services for potential natural gas supplies originating from an upstream project initiative in the Black Sea from Romania (RO) via/to Hungary (HU) and further on to Austria (AT)

3 Physical gas flows in the region AT Nm3/h 569.491 - HU Nm3/h 482.548 - HU Nm3/h RO Nm3/h 191.982 191.933

10.204 9.410 4 PCI 6.24 - ROHUAT Expansion and refurbishment of the existing gas transportation systems 5 New gas route - ROHUAT tech 90% tech. AT HU kWh/h 6.378.300 5.740.470

kWh/h 6.378.300 5.740.470 tech 90% tech. tech 90% tech. HU RO kWh/h 5.164.515 4.648.064 kWh/h 5.164.515 4.648.064 HU RO

kWh/h 3.499.783 3.149.805 kWh/h 3.499.783 3.149.805 6 Incremental capacity process Regulatory Authorities To coordinate the process and to find suitable solutions in the framework of the incremental capacity Network users To express the need for new infrastructure

To support the initiative to give valuable inputs TSOs To prepare the open season/ incremental process To plan the necessary construction works 7 Market survey A market survey on different capacity allocation methods was conducted by the TSOs in February 2016 The following 3 allocation methods have been consulted 13 responses form market participants 8 Market integration

Method 1 Ascending clock auction algorithm according to Art. 17 of the CAM NC Bundled capacity offered as single years in the auctions 9 Market integration Method 2 3 allocation rounds foreseen Allocation rule core logic: Round 1: 15 year commitment for both IPs Round 2: 1 year commitments for both IPs Round 3: 1 year commitments for single IPs (same as Mechanism 1) Round 1 Round 2 10 Market integration

Method 3 Bundled capacity offered as single years in the auctions (same as Mechanism 1) If demand > offer, capacities shall be allocated on the basis of the highest individual bidder commitment in all auctions conducted throughout the period of 15 years at IP Csandpalota and IP Mosonmagyarvr Allocation rule core logic: NU contribution = price IP1 * demanded capacity IP1 * number of years + price IP2 * demanded capacity IP2 * number of years 3 n d o i o t t h op e M red g to et r n ark e

i f d pre ccor of m a me ey o ur v c t s ou 11 Main milestones OS CONSULTATION PHASE 12 Main phases of the Binding OS Confirmation customers registration by TSOs Pubblication of

the first results by TSO 24.04.2017 02.09.2017 27.07.2018 Confirmation of the final results Publication of the final results 02.04.2018 Customer registration announcement of the biding Open Season Procedure 18.06.2018 Operational start-up 1 October 2022

31.03.2017 Economic test II 02.04.2018 13.04.2018 Consultation phase 29.11.2016 08.01.2017 Submission of bids 28.04.2017 31.05.2017 Bid revision I 30.06.2017 01.09.2017 Bid revision II 16.04.2018 18.06.2018 Economic test I Customer registration 01.06.2017 27.06.2017

31.03.2017 17.04.2017 13 Interconnection points Relevant interconnection points (IP) RO/HU border @ Csandpalota (IP1) in both directions HU/AT border @ Mosonmagyarvr (IP2) just in Austrian direction AT Nm3/h 569.491 - HU

Nm3/h 482.548 - HU Nm3/h RO Nm3/h 191.982 191.933 10.204 9.410 14 Capacity products & tariffs Flow Direction Romania Hungary and Hungary Austria TSO

Transgaz FGSZ GCA Yearly Standard Capacity Product Yes Yes Yes Yes Number of Offered Gas Years 15 15 15

15 First Availability 1 October 2022 1 October 2022 1 October 2022 1 October 2022 Network Point Name Csandpalota Csandpalota Mosonmagyarvr Mosonmagyarvr Exit

Entry Exit Entry Romania Hungary Romania Hungary Hungary Austria Hungary Austria 1 kWh/h/year 1 kWh/h/year 1 kWh/h/year 1 kWh/h/year a) 15.873120 RON/kWh/h/year[1]*

b) 2 539.15 HUF/kWh/h/year[2] c) 631.25 HUF/kWh/h/year Entry/Exit Flow Direction Minimum Bookable Capacity Unit d. 0.77 + 3.31 Reserve Price [Floating reserve price + fixed supplement][3] EUR/kWh/h/year Applied exchange rate Indicative Reserve Price Po (in EUR ) 4.49 EUR/RON** 313.04 EUR/HUF

11.64647977 EUR/kWh/h/year (IP1, a+b) Reserve price: Fixed Reserve price: Floating with escalation N/A 313.04 EUR/HUF 6.096515 EUR/kWh/h/year (IP2, c+d) Reserve price: Floating with fixed reserve price Reserve price: Floating supplement Potential auction premium: fixed Potential auction premium: fixed Volume-based tariff upon the usage of the capacity: no Price Evolution After Capacity Allocation Potential auction premium: fixed

Volume-based tariff upon the usage of the capacity: yes Offered incremental Capacity (kWh/h/year) Gas year 2022/2023 Volume-based tariff upon the usage of the capacity: no Potential auction premium: fixed Volume-based tariff upon the usage of the capacity: yes IP Csandpalota (RO HU) IP Mosonmagyarvr (HU AT) 4 648 063 5 740 470 15

Capacity products & tariffs Flow Direction Hungary Romania TSO FGSZ Transgaz Yes Yes 15 15 First Availability 1 October 2022 1 October 2022 Network Point Name

Csandpalota Csandpalota Exit Entry EIC 21Z000000000236Q 21Z000000000236Q Flow Direction Hungary Romania Hungary Romania 1 kWh/h/year 1 kWh/h/year

Reserve Price e) 747.88 HUF/kWh/h/year (fixed) + 631.25 HUF/kWh/h/year (floating) f) 16.135920 RON/kWh/h/year[1] Exchange rate 313.04 EUR/HUF 4.49 EUR/RON* Yearly Standard Capacity Product Number of Offered Gas Years Entry/Exit Minimum Bookable Capacity Unit Indicative Reserve Price Po (in EUR ) 7.999349 EUR/kWh/h/year

Reserve price: Partly fixed, partly Reserve price: Floating floating Potential auction premium: fixed Price Evolution After Capacity Allocation Volume-based tariff upon the usage of the capacity: Yes Potential auction premium: fixed Volume-based tariff upon the usage of the capacity: no Offered Capacity (kWh/h/year) IP Csandpalota (HU RO) Gas year 2022/2030 3 149 722 Gas year 2030/2037

4 828 354 16 Examples ROUTES & TARIFFS 17 Tariffs overview (in local currency) 18 CZK/kWh/h/y 3,922 /kWh/h/y 3,944 /kWh/h/y 32,8 $/1000 m3 0,77 /kWh/h/y 2,6 /kWh/h/y 4,46 /kWh/h/y VTP 0,77 /kWh/h/y 3,31 /kWh/h/y 2,69 % m3

631,25 HUF/kWh/h/y 631,25 HUF/kWh/h/y 98,72 HUF/MWh 2539,15 HUF/kWh/h/y 15,873 Lei/MWh/h 4,31 Lei/MWh 12,47 $/1000 m3 ? 1,81 Lei/MWh/h ? 1,84 Lei/MWh/h 18 Tariffs overview (in Euro) 0,669 /kWh/h/y 3,922 /kWh/h/y 3,944 /kWh/h/y VTP 0,77 /kWh/h/y 2,6 /kWh/h/y

4,46 /kWh/h/y 0,77 /kWh/h/y 3,31 /kWh/h/y 23,55 /kWh/h/y 0,45 /MWh 2,016 /kWh/h/y 0,296 /MWh 2,016 /kWh/h/y 0,296 /MWh 8,111 /kWh/h/y 3,535 /kWh/h/y 0,96 /MWh 9,17 /kWh/h/y ? 1,58 /kWh/h ? 0,96 /MWh 1,82 /kWh/h/y 19 Possible routs to VTP AT

VTP ROHUAT 20 Possible routs to VTP AT RO HU SK AT VTP 21 Possible routs to VTP AT RO UA SK AT VTP 22 Transportation cost different routs to VTP AT Austria

Entry Romania Entry Exit Hungary RO - HU - AT RO - HU - SK - AT RO - UA - SK - AT 4,08 0,77 0,77 Ukraine commodity Entry Exit

commodity Entry Exit Entry (Com) Exit (Com) commodity /MWh /kWh/h/y /kWh/h/y /MWh /kWh/h/y /kWh/h/y

/kWh/h/y /kWh/h/y /MWh /kWh/h/y /kWh/h/y /kWh/h/y RO - HU - AT RO - HU - SK - AT RO - UA - SK - AT Slovakia 3,535 3,535 1,58 Nominated Booked 100% 100% kWh

kWh/h/y 8.760.000.000 1.000.000 8.760.000.000 1.000.000 8.760.000.000 1.000.000 RO - HU - AT RO - HU - SK - AT RO - UA - SK - AT Nominated Booked 80% 100% kWh kWh/h/y 7.008.000.000 1.000.000 7.008.000.000 1.000.000 7.008.000.000 1.000.000

RO - HU - AT RO - HU - SK - AT RO - UA - SK - AT Nominated Booked 45% 100% kWh kWh/h/y 3.942.000.000 1.000.000 3.942.000.000 1.000.000 3.942.000.000 1.000.000 0,96 0,96 0,96 8,111 8,111

2,016 2,016 0,296 0,296 2,6 4,46 9,17 Capacity Commodity Total 17.742.000 + 11.002.560 =

28.744.560 21.492.000 + 11.002.560 = 32.494.560 2.350.000 + 45.071.600 = 47.421.600 Capacity Commodity Total

17.742.000 + 8.802.048 = 26.544.048 21.492.000 + 8.802.048 = 30.294.048 2.350.000 + 36.057.280 = 38.407.280 Capacity Commodity

Total 17.742.000 + 4.951.152 = 22.693.152 21.492.000 + 4.951.152 = 26.443.152 2.350.000 + 20.282.220 = 22.632.220 23,55 0,45

23 Examples RANKING OF BIDS RESULTS 24 Bid results with overbooking fill or kill 25 Bid results without overbooking fill or kill 26 Examples Austrian side ECONOMIC TEST

27 Austrian coordinated network development plan 2017-2026 28 Determination of the economic viability (Austrian side) The economic tests (Economic Test I and Economic Test II) for incremental capacity at the entry point Mosonmagyarvr are based on the following parameters: PVAR = 156.325.000 EUR f = 0.75 PVUC 117.243.750 EUR The economic test will be positive if the value of binding commitments of network users is equal to or higher than 117.243.750 EUR. As the allocation of all incremental capacity at the reference price (i.e. 0.77 /kWh/h/y) would not generate sufficient revenues for a positive economic test outcome, a mandatory minimum premium (i.e. 3.31 /kWh/h/y) (supplement) is applied for the allocation of the incremental capacity. The mandatory minimum supplement has been calculated based on the assumption of 1.913.490 kWh/h/y minimum booked incremental capacity for

15 years in a row. 29 Determination of the economical viability Conditions for the calculation of the mandatory minimum premium: 30% of the technical capacity flat booked for 15 years 25% of the total costs socialized on existing IPs 30 Determination of the economical viability base case: generated revenues 31 Determination of the economical viability base case: generated revenues 32 Determination of the economical

viability Tariff composition for the base case 33 Negative economic test 34 Negative economic test to be reallocated to top of the initial mandatory premium 35 Negative economic test Increasing of the minimum mandatory premium part of the tariff +1,64 36 Positive economic test 37

Positive economic test to be subtracted from the initial mandatory premium 38 Positive economic test decreasing of the minimum mandatory premium part of the tariff , 39 Overall economic tests The project will be realized if all the 4 economic tests in direction RO -> VTP AT will be positive the 2 economic tests at the IP Csanadpalota will be positive 40 Contact

Alessandro Ischia + 43 1 24 7 24 810 [email protected] www.e-control.at 41 42 Open season platform? 43 Main phases of of the Binding OS

Milestone Date Consultation Phase 29.11.2016 09.01.2017 Announcement of the Binding Open Season Procedure 31.03.2017 Customer Registration 31.03.2017 17.04.2017 Confirmation Customer Registration (TSOs) by 24.04.2017 Submission of bids 28.04.2017 31.05.2017

Economic Test I 01.06.2017 27.06.2017 Bid revision I 30.06.2017 01.09.2017 Publication of first results (TSOs) 02.09.2017 Confirmation of final results (Participants) 02.04.2018 Economic Test II 02.04.2018 13.04.2018 Bid revision II 16.04.2018 18.06.2018

Publication of the final results (TSOs) 18.06.2018 Return countersigned contract to Participants 27.07.2018 44 Project development Incremental process time line Execution of the open season Definition of the rule book of the open season TSO coordination PCI 6.24 capacity of

4,4 bcm is expected to be available at latest in 2022 Upstream project initiative 2014 2015 Market survey on different capacity allocation methods was conducted by the TSOs in February 2016, Q1 2016 Timeline Q4 2016

Q1-Q2 2017 45 Next steps to provide tariffs applying the new methodology acc. to TAR NC by March 2017 Rule book prepared by TSOs Open season to be carried out in 2017 in parallel to the yearly auction in accordance with the CAMauction calendar put into operation 2nd phase (4.4 bcm/y) depending on when the FID will be taken, latest for 2022 46 Possible routs to VTP AT VTP 47

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