Implicit Allocation Services
The Implicit Allocation Mechanism (IAM) is one of the allowed methods by which gas transmission capacity can be allocated under the Capacity Allocation Mechanisms CAM Network Code (CAM NC).
The IAM differs from the explicit allocation methods, such as those employed for the PRISMA capacity auctions, since the allocation of capacity has to be accompanied by an equivalent purchase or sale of gas. Thus, to purchase transmission capacity via the IAM, the capacity sale has to be aligned with a corresponding commodity transaction.
Transmission Network Operators
Currently, Cavendish Markets partners with two Transmission Network Operators (TSOs) that have adopted the IAM as a way to allocate their capacity, namely, the BBL Company (BBL) and Interconnector (IUK). Both these TSOs operate natural gas pipelines between Europe and the UK. More information about these two TSOs can be found at their websites:
To participate in the IAM offering of either TSO, a market participant must be fully signed-up as a shipper, with that TSO.
Cavendish Markets Role
Cavendish Markets facilitates each TSO’s IAM capacity allocation by arranging the corresponding gas deal and by helping the TSO to administer the allocation of the capacity. Specifically, at the point of trade, following a valid IAM request from a shipper, Cavendish Markets transmits information to the TSO that a shipper has traded and has requested the corresponding capacity to be allocated to them, via the IAM. The TSO then checks, acknowledges the allocation and books it into their system. The capacity is allocated directly from the TSO to the shipper. Once acknowledged, Cavendish Markets confirms to the shipper that the TSO has booked the allocation. The allocation will also be visible on the TSO’s own systems.
Every occurrence of capacity allocation via the IAM must be associated with a physical gas deal involving the allocation of a corresponding quantity of gas. A gas deal can be matched with an allocation of capacity as long as the following criteria are met:
The tenor of the capacity matches the delivery tenor of the gas contract;
The capacity provides flat and unbroken transmission permissions during the tenor;
The volume of capacity equals the minimum total contract quantity of the given gas contract; and
The capacity is allocated at the same time that the commodity is traded.
If the volume of the gas deal is defined in units other than those used to specify the capacity, for example, in therms, a volume conversion is made and rounded to the nearest kWh/h for the capacity.
Additionally, constraints are made on the geographic region where the gas is to be delivered. Your Cavendish Markets broker will be able to discuss all this and more, in detail.
Key IAM Information
Key information required by the shipper includes:
The current volume of capacity available via IAM, at Cavendish Markets;
The current fixed tariffs (by direction and tenor); and
The capacity sales that have already been processed.
All of this can be found on the PLEXHUB platform and all IAM shippers will be given free access to the platform, to view this IAM related information. More information about PLEXHUB can be found at www.plexhub.com.
In order to purchase capacity via the IAM, the shipper must request the capacity. To do this, they must contact their broker at Cavendish Markets via an official recorded medium. A request will be considered valid if:
The request is being made by a registered shipper;
The capacity being requested is available, via IAM at Cavendish Markets;
The shipper is able to purchase the capacity, for example, they have sufficient credit with the TSO; and
The shipper is willing and able to trade an equivalent gas deal.
Point 4 requires the shipper to either be at the point-of-trade or else either has initiated, or is ready to initiate, an order, at a marketable level and volume, that is expected to promptly trade. Capacity requests can be made at any point before or during the negotiation phase of the corresponding gas deal.
The shipper must be available and contactable at the point of allocation. Capacity cannot be allocated in the shipper’s absence.
Valid requests are handled on on a “first come, first served” (FCFS) basis. As such, requests are queued. The priority of each request depends on its position within the FCFS queue with those near the front having a higher priority that those towards the back. As such, no requests in the FCFS queue can be fulfilled if doing so diminishes Cavendish Markets' ability to fulfil another request, nearer the front of the FCFS queue.
It is possible that, even though the shipper is deemed willing and able to trade at a marketable level, a viable counterparty cannot be found for the gas trade. This scenario is more likely for shippers that are more tightly credit constrained and/or have fewer EFETs in place, reducing the number of possible counterparties. It is important that such shippers are not discriminated against and Cavendish Markets will always ensure that all efforts are taken to try to arrange the gas deal for these shippers, however, sometimes, it may not be possible. In such cases, the shipper will be informed that their current order cannot be filled. If the shipper cannot improve their order, their request will be removed form the FCFS queue.
In order for a request to be considered valid, the capacity being requested must be available.
There are a number of reasons why unsold capacity would not be available, for example, the capacity was removed from IAM, to be explicitly allocated, via the PRISMA auction. In this case, the time and date at which the capacity will be made (or re-made) available, via IAM, will be communicated to the market, by the TSO, ahead of time. It is possible that, on occasion, there is pent up demand in the market to purchase the soon-to-be available capacity, via the IAM. In such situations, shippers may be ready to request the capacity before it becomes available however, such requests are invalid until the capacity is available.
Requests are allowed to be submitted by shipper before the capacity is available, however, such “pre-requests" only enter the FCFS queue at the point in time that the request becomes valid, specifically, at the moment the capacity becomes available.
For pre-requests to become valid, they must fulfil all the criteria associated with valid orders (listed above). Assuming they do, all pre-requests will become valid and enter the FCFS queue at the same time, when the capacity becomes available. Such requests will share an equal first place, within the FCFS queue, regardless of the order in which those early pre-requests were made.
If multiple valid requests occupy the same place in the FCFS queue they are treated entirely equally. If the demand outstrips the available quantity, the capacity will be evenly split between the equally placed requests.
Onboarding with Cavendish Markets
In order to access Cavendish Markets’ IAM services, shippers must have an Energy Broking Agreement (EBA) in place with Cavendish Markets, covering the commercial terms for arranging the gas deal. There are no additional fees charged for facilitating the capacity allocation.
Shippers are also required to provide Cavendish Markets standard "Know Your Customer” (KYC) information.
Once onboard, shippers will be provided access to the IAM resources on the PLEXHUB platform. This access is given free of charge, to the shipper.