Supply insecurity - How to secure the supply of natural gas

The Russian attack on Ukraine and the energy policy consequences have cast a spotlight on Germany's import dependence on primary energy sources – and (potential lack of) security of supply. After the Federal Ministry of Economic Affairs and Climate Action (BMWK) declared the “early warning stage” of the national gas emergency plan in March after the Russian attack, supply security is now also in the focus of many companies.

The reason for this measure was the breach of private supply contracts by the Russian announcement to accept payment for gas deliveries only in roubles. In addition to this somewhat formal question, reducing import dependencies based on energy sources is also promoted by recent regulatory projects.

Below, we will describe specific possibilities for companies as well as the latest legislative changes.

Emergency plan for gas

The Emergency Plan for Gas, which is now being applied for the first time, is based on a requirement of the European Union (EU). Regulation (EU) 2017/1938  of 25 October 2017 concerning measures to safeguard the security of gas supply (also "SoS Regulation") provides for a comprehensive set of instruments to strengthen the internal gas market in order to take precautionary measures in the event of a supply crisis. The necessary national framework conditions and design rights for companies and authorities for Germany are implemented in the Energy Industry Act (“Energiewirtschaftsgesetz, EnWG”), the Act to Ensure the Supply of Energy (“Energiesicherungsgesetz, EnSiG”), and the Ordinance to Ensure the Supply of Gas in a Supply Crisis (“Gassicherungsverordnung, GasSV”).

Warning cascade

The SoS Regulation requires that the competent authority of each Member State - after consulting the necessary stakeholders (such as natural gas undertakings, organisations, electricity transmission system operators and the national regulatory authority) - draws up an emergency plan (Art. 8 para. 2 lit. b SOS Regulation). This plan shall provide for measures to eliminate or mitigate the consequences of a disruption of natural gas supply (art. 10 SOS Regulation) and contain the cornerstones of the organisation and systematics of an operational crisis and emergency management. For this purpose, a distinction is made between three escalating crisis levels of this emergency management: the early warning level, the alert level and the emergency level (Art. 11 Para. 1 SoS-Reg).

• The early warning level is declared when there is concrete, serious and reliable information that an event which is likely to result in significant deterioration of the gas supply situation may occur and is likely to lead to the alert or the emergency level being triggered; the early warning level may be activated by an early warning mechanism
• The alert level is reached when there is a where a disruption of gas supply or exceptionally high gas demand which results in significant deterioration of the gas supply situation occurs but the market is still able to manage that disruption or demand without the need to resort to non-market-based measures.
• Finally, the emergency level requires an exceptionally high gas demand, significant disruption of gas supply or other significant deterioration of the gas supply situation and that all relevant market-based measures have been implemented but the gas supply is insufficient to meet the remaining gas demand so that non-market-based measures have to be additionally introduced with a view, in particular, to safeguarding gas supplies to protected customers.

Consequences and possible measures

Possible market-based instruments and measures of the gas supply companies according to the respective level are provided for in §§ 16, 16a EnWG. "Market-based" means that the measures can be taken by the gas supply companies operating on the market without intervention by the state. Both market-based measures - for example the purchase of balancing energy or the curtailment of gas supplies - and network-based measures are possible. The latter - for example network switching - does not influence the market. Non-market-based measures in the sense of the emergency plan are state intervention measures that are defined nationally in the EnSiG and the GasSV. The acting authority is the Federal Network Agency (“Bundesnetzagentur, BNetzA”).

The following concrete measures can be taken at the various levels of the emergency plan:

• In the early warning and alert level, the European internal market rules continue to apply without restriction, while the gas supply companies ensure the supply of natural gas to "protected customers" within the meaning of § 53a EnWG.

  In particular household customers, other final consumers in the natural gas distribution network,  basic social services are supplied.  Also and district heating plants are connected to the gas distribution or transmission network shall continue to be supplied. Thus, in addition to consumers, companies may also be protected customers if, for example, they are final consumers in the natural gas distribution network where either standardised load profiles apply or they supply household customers with the required part for the purpose of heat supply, § 53a (1) no. 1 EnWG.

  Within the scope of their respective system responsibility, the transmission and distribution system operators may take the market-based measures of §§ 16, 16a EnWG - in particular the use of balancing services, contractual arrangements for disconnection and the use of storage facilities. The transmission system operators shall provide written situation assessments to the BMWK at least once a day. The electricity transmission system operators exchange necessary information and coordinate their measures with each other in order to keep their respective grids stable for as long as possible.

• In contrast, at the emergency level, certain state measures according to the EnSiG and GasSV are available in addition to the market-based measures. These are carried out by the BNetzA or the federal states as load dispatchers in order to secure the vital demand for gas with special consideration for protected customers and to minimise consequential damage. The gas supply companies are obliged to support the BMWK in assessing the situation and to participate in the crisis team. In doing so, it must be ensured that no measures are taken
  • which unduly restrict load flows within the internal market;
  • which would be likely to seriously jeopardise gas supply in another EU Member State; and
  • cross-border access to infrastructures is maintained as far as technically and safety feasible (Art. 11 para. 6 SoS Regulation).

Options for action

If an emergency occurs and the emergency level is declared, the BNetzA as the federal load distributor must decide who should continue to be supplied with gas. In this context, the authority emphasises that such a decision always depends on the specific individual case and that no abstract order of disconnection is being prepared. Important parameters to be considered in the individual case are, for example, gas storage filling quantities, weather conditions, European demand, and savings already achieved.

Nevertheless, the Federal Network Agency has developed criteria that can be used to simplify an overall assessment. These are intended to ensure that the requirements for proportionality of such a decision are met. For this purpose, information on their connection and usage situation has been obtained from network operators since 21.04.2022, and from end consumers since 02.05.2022. Companies are advised to provide well-founded information on the following areas:

• Size and performance of the company,
• supply of critical infrastructure and existing supply obligations,
• required response time for a smooth shutdown to avoid damage,
• overview of processes that conceptually cannot be interrupted,
• economic consequences of the shutdown, and
• the possibility of fuel switching.

Once the information has been obtained, it is to be compiled on an IT-based gas safety platform.

However, those affected are not defenceless in the event of a shutdown order by the Federal Network Agency. If the shutdown results in massive interference with property in the form of expropriation, compensation must be paid in accordance with § 11 EnSiG. § 12 EnSiG also provides for compensation for hardship if economic livelihoods are endangered or destroyed by the order. Compensation must be claimed from the Federal Network Agency. In addition, claims for breach of official duty by the federal government (Art. 34 of the Constitution of the Federal Republic of Germany (“Grundgesetz, GG”) in conjunction with § 839 of the German Civil Code, “Bürgerliches Gesetzbuch, BGB”) are discussed. The prerequisite here would be that the guarantee of a secure energy supply is violated.

Current legal projects

In addition to the expansion of renewable energies and a diversification strategy to enable the purchase of natural gas, for example as Liquefied Natural Gas (LNG), via planned fixed or offshore ship-based terminals, the federal legislature has taken other measures to secure the supply.

Gas Storage Act

With the resolution of the Federal Council (“Bundesrat”) of 08.04.2022 accepting the Gas Storage Act (“Gasspeichergesetz”), the obligation of the operators of gas storage facilities to maintain minimum filling levels at certain times of the year by has been decided. The amendment to the EnWG, which came into force at the beginning of May, stipulates that operators of gas storage facilities must each maintain a filling level of

• 80 percent on 1 October,
• 90 per cent on 1 November and
• 40 percent on 1 February.

The act provides that the values can be adjusted by statutory order according to the supply situation.

To make unused storage capacities available, operators are also obliged to adjust their contracts with users and make free storage capacities available. If these measures are not sufficient to achieve the fill level targets, further measures such as the tendering of gas options for the storage capacities are possible in the short term.

Amendment of the Energy Security Act

As a further measure, the Energy Security Act (EnSiG) has been revised and is in force since 22 May.

The revision concretises and selectively supplements the measures already contained for the event of a crisis. Among other things, an ordinance authorisation is included that allows the establishment and operation of digital platforms for the preparation of official measures. In the same way, deviations and exceptions from immission control requirements are possible in future by ordinance.

With § 2, a EnSiG a new section is included which also extends the measures and ordinance authorisations to the fulfilment of the solidarity obligations resulting from European law requirements. The existing compensation and hardship compensation provisions also apply to these measures.

The regulations on trusteeship and expropriation of critical infrastructure companies are also completely revised. Accordingly, companies that themselves operate critical infrastructure in the energy sector or are associated with such a company can be placed under trusteeship. The prerequisite is that there is a concrete danger that without trusteeship the company will not fulfil its tasks serving the functioning of the community in the energy sector, and that there is a threat of impairment of the security of supply.

The order for trusteeship is limited to a maximum of six months, but can be extended if the conditions are met. The costs of trusteeship are borne by the company itself.

If the trust administration is no longer sufficient to secure the energy supply, shares in companies of the critical infrastructure in the energy sector or companies affiliated with such companies can also be expropriated. The beneficiary of expropriation must be a company in (exclusively) public ownership.

Compensation must be paid for the expropriation in accordance with the provisions of the Basic Law.

Classification

It is unclear how the supply situation will continue to develop after Russia's supply stops to the Netherlands and Denmark and the Russian boycott of German gas supply companies.

The new statutory provisions provide a basis for more state intervention, and which  may turn out to be necessary in an emergency. Whether and to what extent this will be used remains to be seen. As a first use case of the measures under the EnSiG Gazprom Germania, currently under trusteeship by the BNetzA, has been discussed.

For companies that fear supply bottlenecks, the recommendation remains to demonstrate the (economic) relevance of supply to the network operators and energy suppliers.