Numerous European governments have committed to ambitious decarbonization targets. Among them, the Austrian government aims for full decarbonization by 2040. Like many other European countries, Austria is still dependent on imports of fossil fuels like natural gas from Russia. Without significant improvements in carbon capture technologies, burning natural gas for heat and power generation is incompatible with the decarbonization targets. Achieving the decarbonization targets requires a far-reaching transformation of the energy supply system. This transformation is ongoing.

The transformation of the energy supply system has implications for gas infrastructure, which must either become part of a carbon-neutral system or face stranding risk. This prospect is particularly problematic for gas networks, which are subject to natural monopoly regulation. Under such regulation, demand risk is assumed to be non-existent, which is at odds with current demand outlooks. Scope for transformation is limited by unbundling rules and regulations on contract design with infrastructure users.

Against this backdrop, Salzburg Netz, a major Austrian gas network operator, commissioned a NERA team led by Managing Director Tomas Haug and Consultant Lorenz Wieshammer. In a series of joint workshops, the network operators and NERA analyzed the current and future demand for the gas infrastructure and the different types of use, focusing on novel technologies such as synthetic methane, hydrogen, and biomethane.

The analysis revealed that renewable gases will play an important role in a decarbonized energy supply system and that the gas infrastructure will be needed in the future for several reasons. For one thing, as opposed to the electricity network, the gas network is designed to cope with the seasonality of heat demand and has significant energy storage potential. Second, gas-fired power plants are increasingly important for security of supply given the unpredictable and intermittent generation of renewable electricity sources. Also, a converted gas infrastructure may allow for large-scale hydrogen imports.

In addition, NERA analyzed the implications of these developments for gas network regulation and identified necessary adjustments. According to this analysis, the current natural monopoly regulation can impair or delay the transformation of natural gas networks in becoming part of a decarbonized energy supply system. Therefore, regulators should shift their focus away from efficiency improvements and cost reductions, instead focusing on the overarching objective of enabling gas networks to make an effective contribution to the decarbonization of the energy supply system. Concrete measures to achieve this shift include a relaxation of unbundling rules in certain areas, the suspension of regulatory benchmarking exercises, allowing effective risk-sharing with infrastructure users through long-term contracts and credible rules for the treatment of stranded costs. 

Based on the joint discussion and drawing on the conclusions in the NERA report, Salzburg Netz has drafted a list of demands that is now being discussed with different stakeholders. Mr. Haug and Mr. Wieshammer have summarized some of their main conclusions in an upcoming article.