The package of measures proposed by the European Commission to reduce energy prices and ensure security of supply was supposed to be adopted in November. Even though some issues are still in dispute between the Member States, the draft regulation already indicates important points on how these goals need to be implemented. In addition, Germany also put together a package of measures designed to provide additional relief and strengthen energy security in Germany. However, some detailed regulations governing the specific consequences for the energy market are still outstanding. The following is therefore intended as a workshop report.
The European package of measures and the status of national implementation in Germany
At European level, the package of measures to reduce energy prices and guarantee security of supply (COM/2022/549 final) has sparked great controversy among Member States. This is due to differing interests, which in many cases can be traced back to different supply and demand situations as well as circumstances which still hinder the full realisation of the internal energy market. In Germany, there is still an ongoing discussion about the implementation of the package of measures.
In particular, the EU and Germany are planning or currently implementing the following measures:
- Joint gas purchasing,
- Reduction in gas demand (already adopted in Regulation (EU) 2022/1369, for comments on the draft see link),
- Solidarity and optimisation of use (in addition to the solidarity measures of Article 13 of Regulation (EU) 2017/1938),
- Energy price regulation, in particular a dynamic price cap, a new benchmark index and energy price brakes,
- Reliefs and subsidies,
- Amendments to the Energy Security Act (Energiesicherungsgesetz, “EnSiG”) and the Energy Industry Act (Energiewirtschaftsgesetz, “EnWG”), in particular to extend expropriation powers in the interests of securing supply.
Joint gas purchasing
A temporary energy platform is to ensure that gas storage facilities will be refilled in the coming summer months starting in spring 2023. Member States will notify the EU of their gas requirements and the EU will in turn instruct a service provider to supply the combined demand. Domestic businesses will be required to meet 15% of their gas storage obligation through the common platform, with companies’ participation in the platform being in principle voluntary for gas volumes over and above the 15% target. Companies participating in the energy platform will be able to form joint ventures with other companies for joint procurement, which has to date been illegal under competition law. As the requirements in the Member States differ in this respect, the EU will allow several mergers. The aim is to create improved market conditions for SME’s and Member States regarding the purchase of gas. A steering committee of Member States and the Commission will be overseeing this measure. So far, questions of antitrust and competition law remain explicitly open in this respect.
Furthermore, in this context, the Commission must be notified of gas purchases exceeding 5 TWh per year. If an individual transaction that meets this criterion has a negative impact on joint procurement or the internal market, the Commission will be able to issue a recommendation on this transaction.
Reduction in gas demand
Efforts will continue to be made to drastically reduce gas consumption. In order to promote gas savings, Member States will also be able to reduce the non-essential gas consumption of protected customers. The Member States will determine who qualifies as “protected customers”. In Germany, for example, the term “protected customers” generally includes household customers. Depending on their consumption, SMEs also regularly qualify as “protected customers”. German energy law already distinguishes between essential and non-essential gas requirements. However, the Federal Network Agency (Bundesnetzagentur) is currently defining in more detail the conditions under which requirements of non-protected customers qualify as essential gas requirements. This includes, for example, the production of life-sustaining, non-importable medicines.
Solidarity and optimisation of use
So-called solidarity agreements ensure that each Member State receives gas from another Member State in case of urgent need, for which it has to pay a fair compensation. There are currently only six such bilateral agreements, including those between Germany and Denmark as well as Germany and Austria. The Council’s agreement means that in the event of gas shortages, these solidarity agreements, which have so far been voluntary under Regulation (EU) 2017/1938 concerning measures to safeguard the security of gas supply, will become binding by means of standard rules, provided that a state has not yet concluded such a solidarity agreement at Member State level in its gas supply relations. The decision has also been made to extend the solidarity obligation to Member States without a direct pipeline connection, in order to take account of the importance of LNG terminals. A shortage in this sense is considered to exist if a Member State declares an EU alert because it can no longer supply its protected customers. The Member State benefiting from the solidarity measures must pay the market price for the gas received under such measures. It must also bear indirect costs such as the reimbursement of financial losses resulting from the disconnection of customers.
Furthermore, the Member States have decided to optimise the use of LNG terminals by enabling network operators to reallocate transit rights or reserved capacities more quickly if they are not in use. In addition, a secondary market for unused capacities will be established.
In order to counteract liquidity shortages in the energy trading sector, the draft stipulates that traders should be able to provide non-cash collateral for margin calls, as well as government guarantees. In addition, there are plans to raise the clearing threshold for non-financial counterparties from EUR 3 to 4 billion. The EMSA is currently drafting rules for this purpose. There are also plans to limit volatility in electricity and gas trading by introducing rules on price fluctuations (“circuit breakers”) that occur within a trading day, with a focus on front month derivatives.
Energy price regulation: dynamic price cap and new benchmark index
Instead of a fixed gas price cap, a dynamic price cap has been agreed for a period of one year for the main benchmark index TTF. This market correction mechanism will be triggered as soon as the TTF month-ahead price exceeds EUR 180 per MWh for three consecutive days. The LNG reference price must also be at least EUR 35 less than the TTF price during these three days. The mechanism will be activated for at least 20 days. If the price then falls below EUR 180 per MWh again for three consecutive days, the mechanism will be deactivated. However, over-the-counter transactions outside of the exchanges will still be possible. In Germany, the dynamic price cap is viewed with concern. During the heated discussions about the introduction of the gas price cap, Berlin pointed in particular to the risk that gas would have to be rationed and allocated as a result of this measure, as the cap could lead to gas being preferentially supplied to other markets. In order to counteract supply bottlenecks, it should be possible to suspend the EUR 180 cap in the event of a significant decline in LNG imports.
In addition, the decision has been made to introduce a completely new benchmark index for LNG imports by the end of March 2023, which will replace the dynamic price cap for the next filling season in order to decouple LNG deliveries from the TTF price. The index will only apply to new contractual relationships and will not interfere with existing ones. For the purpose of designing the mechanism, the regulatory agency ACER is to provide more transparency on LNG import prices by the end of the year. According to the Commission, the aim is to correct gas prices that are no longer accurately reflected by the TTF benchmark index, and to contribute to more stable and predictable pricing for LNG transactions. Market participants and experts, on the other hand, largely criticise the new index as artificial and unpromising.
Energy price regulation: energy price brakes at German level
The energy price brakes, which are envisaged as a further stage of the relief measures, will apply from 2023 onwards. Non-industrial electricity customers will feel the financial effects as early as 1 January 2023, which is when the gas and electricity price brake for industry is also to come into force. The gas and electricity price brake for customers billed according to standard load profiles (SLP customers) will enter into force on 1 March 2023 with retroactive effect for January and February 2023.
The latter is to grant beneficiaries a gross gas price of 12 ct/kWh for 80% of projected annual consumption and 9.5 ct/kWh for district heating until 30 April 2024. The same applies to residential units or lodgings with real-time meters (registrierende Leistungsmessung, “RLM”) as well as some state or state-approved facilities that have a consumption of less than 1.5 GWh/a.
At least for large consumers, especially industrial ones, a cap on the net gas price of 7 ct/kWh will apply from 1 January 2023 until 30 April 2024. This relief applies to 70% of the consumption volume, based on the period from November 2021 to October 2022. The cap applies both to gas-based heat generation in production processes and the use of gas as a raw material for production. In addition, the cap applies regardless of actual consumption in the next year.
The electricity price brake will also apply to all SLP customers from 1 January 2023 to 30 April 2024, with the relief calculated based on a cap at 40 ct/kWh for a base quota of up to 80% of the previous year’s consumption. It will apply retroactively as from March 2023. For industrial consumers, particularly RLM customers, the electricity price brake is expected to result in relief based on a net price of 13 ct/kWh for a quota of 70% of the previous year’s consumption. As the relevant regulations must remain within the EU Commission’s Temporary Crisis Framework (TCF), a term of 1 January 2023 to 31 December 2023 is initially envisaged for this, whereby the relief is not to be implemented until March 2023 and will apply retroactively from 1 January 2023.
Other planned measures include the stabilisation of transmission system charges at 2022 levels and the absorption of windfall profits in the electricity market, which is mandatory under the EU Emergency Electricity Regulation.
Relief and subsidies at European level
In order to relieve the burden on citizens and, in particular, on small and medium-sized companies in Europe, it is planned to reallocate EUR 40 billion of EU budget funds. Furthermore, the Temporary Crisis Framework has been extended to make it possible to provide up to EUR 150 million in subsidies to energy-intensive industries. This framework will also allow for new subsidy schemes. For the time being, however, the proposal to subsidise gas for electricity generation and thus the electricity price has been abandoned. The Commission stated that the problem of leakage, i.e. the outflow of subsidised electricity to non-EU countries, and the financing of such subsidies would first have to be clarified.
Relief and subsidies at German level
In addition, the Bundestag has adopted comprehensive relief measures, which also include emergency aid and the aforementioned gas, heat and electricity price brakes, while maintaining incentives for savings. The “gas and heat emergency aid package” has already taken effect in December 2022, allowing refunds within this framework from 1 December 2022. The aim of the emergency aid package is to provide relief for the rise in energy prices by covering a single monthly instalment for customers. In the case of gas, the relief amounts to one-twelfth of the annual consumption forecast by the gas supplier in September 2022 multiplied by the energy price for December, plus pro rata relief for other price components. In the case of heat, on the other hand, the relief is the product of the September instalment and the statutory adjustment factor of 120%. The relief will be granted to all consumers or SLP customers, i.e. in particular households, SMEs and social facilities, which are thus exempted from their December instalment payment. RLM customers are also eligible if their annual consumption does not exceed 1.5 million kWh for the withdrawal point concerned. The refund to the suppliers will be processed by the state and was due to be made – as part of an advance payment aimed at securing liquidity – on 1 December 2022 or at the latest two weeks after the submission of an application for the advance payment. This means that the German legislator has ignored the concerns expressed by the energy sector, which sees the measures to be implemented in the short term as imposing an almost unmanageable additional burden on the energy companies, which have been turned into “paying agents for the German government”.
Amendments to the EnSiG and the EnWG, in particular to extend expropriation powers in the interests of security of supply
Germany has adopted amendments to both the EnSiG and the EnWG in order to be able to respond more comprehensively and flexibly to gas shortages.
A key change to the EnSiG is the extension of the expropriation statute. According to the statute, the ownership of petroleum and petroleum products as well as other energy sources, electrical energy and other energies or other means of production can be expropriated in favour of a third party if this is necessary to ensure that the essential need for energy is met. It has been clarified that this can take place independently of the use for energy purposes. In principle, the acquisition or production costs of the person entitled to compensation at the time of the acquisition or production of the expropriated property and the costs of financing are to be decisive for compensation.
In order to secure the energy supply, Germany is promoting the rapid expansion of LNG terminals. Therefore, it will be possible to access movable property by means of an intervention equivalent to expropriation. The intervention refers only to such moveable property that the owner does not need in the near future for the construction, maintenance and repair of gas infrastructure, but that is required for the construction of natural gas pipelines and associated infrastructure. Furthermore, it only concerns such property suitable for making a significant contribution to securing the energy supply. The amount of compensation for this is to be determined based on the market value. At the same time, it will also be possible to demand access to documentation, in particular written documents and records insofar as this can enable or accelerate the construction of natural gas pipelines or related infrastructure. This includes the use of such documentation and the granting of rights of use to subject-matter protected by industrial property rights and copyrights as well as to business secrets. A remuneration obligation is envisaged for the aforementioned rights of use, which will initially be incumbent on the Federal government, but will ultimately have to be borne by the beneficiary.
In particular, the amendments to the EnWG lay down the obligation to provide a consumer-specific account of certain fill levels at the request of the Bundesnetzagentur if there is a risk of non-compliance with fill-level requirements. In addition, the hydrogen network development concept envisaged by the Federal Ministry of Economics and Climate Protection (Bundesministerium für Wirtschaft und Klimaschutz) will be postponed, as discussions of the European Commission’s internal gas and hydrogen market package, which is decisive in this respect, will be delayed as a result of the energy crisis.
Conclusion
The Commission’s proposal for a package of measures to reduce energy prices and ensure security of supply has so far signalled, in particular, a joint European approach to the energy crisis. The focus of this approach is on the dynamic price cap and the joint procurement of gas in order to ensure the EU’s security of supply for the coming year as well. In addition, Germany has adopted short-term measures to cushion the acute burdens for both consumers and industry this winter and – in a second step – from 2023 onwards.
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