German Federal Court of Justice Upholds Building Cost Subsidies for Battery Storage Operators
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The German Federal Court of Justice (Bundesgerichtshof; "BGH") recently ruled that operators of battery energy storage systems ("BESS") must pay building cost subsidies (Baukostenzuschüsse) in the same way as other grid users.
Key Takeaways
The BGH recently ruled that distribution system operators ("DSOs") are entitled to charge building cost subsidies for BESS in the same way as for other grid users. According to the BGH, this is in line with the prohibition of energdiscrimination (Diskriminierungsverbot) under the Energy Industry Act (Energiewirtschaftsgesetz, "EnWG"). Although the BGH acknowledges fundamental differences between BESS operators and other grid users, it considers their equal treatment to be permissible. This is intended, in particular, to ensure the core functions of building cost subsidies and the broad discretion of the Federal Network Agency (Bundesnetzagentur, "BNetzA") and the grid operators.
Background
The legal dispute began when a BESS operator was charged a building cost subsidy for the connection of a new BESS to a distribution grid. The DSO calculated the building cost subsidy in accordance with the administrative guidance published by the BNetzA.1 Unwilling to pay the building cost subsidy, the BESS applied to the BNetzA to initiate abuse proceedings (Missbrauchsverfahren). The BNetzA rejected the application.
The BESS operator successfully appealed the decision before the competent Higher Regional Court of Düsseldorf (Oberlandesgericht Düsseldorf, "OLG Düsseldorf"). In its decision, the OLG Düsseldorf sided with the BESS operator. It stated that it constitutes discriminatory equal treatment with other grid users if BESS operators pay the same amount of building cost subsidies. Unlike ordinary consumers of electricity, BESS do not consume electricity continuously, but also feed it back into the grid and can thus provide grid-beneficial services. Furthermore, the OLG Düsseldorf considers charging of building cost subsidies from BESS to be inadmissible under EU law.
The BNetzA has challenged this decision before the BGH.
Grounds for the BGH Decision
Ensuring Grid Capacity and Financing
According to the BGH, the two core functions of building cost subsidies must also be ensured in case of BESS.
Firstly, building cost subsidies serve as an economic incentive for grid users to request only the grid capacity they actually need (steering function). Otherwise, the BGH sees a risk that BESS operators would apply for too much connection capacity as a precautionary measure in order to secure a "buffer for later expansions".
Secondly, building cost subsidies directly contribute to the costs of the local distribution grid to which the user is connected (financing function). Otherwise, the BGH sees a risk that the actual costs of the grid expansion would be passed on to all end consumers, while the economic benefits of the BESS would merely benefit the operator.
Limited Judicial Review
The BGH emphasized that DSOs have entrepreneurial freedom in deciding whether to charge building cost subsidies, provided that the conditions are transparent and non-discriminatory. In doing so, the DSO can rely on the administrative guidance published by
Not Necessarily Beneficial to Local Distribution Grid
The BGH acknowledges that BESS may have grid-beneficial effects and can thus reduce the need for grid expansion. However, it points out that the grid-beneficial effects depends on the commercial strategy of the BESS operator and are therefore not geared to the demands of the local distribution grid. Therefore, it cannot be assumed that BESS necessarily avoids local grid expansion costs.
The BGH is of the opinion that it is within the DSO's discretion to assess whether, and under what conditions, transparent and non-discriminatory incentives for the use of BESS should be established.
No Special Treatment due to Dual Function
BESS operators have a dual function: they are both electricity consumers (when withdrawing) and electricity producers (when feeding into the grid). The payment of building cost subsidies is linked only to the withdrawal of electricity. According to the BGH, the withdrawal and the feed-in of electricity are to be regarded as separate processes. For the charging of building cost subsidies, it is therefore irrelevant whether the electricity is fed back into the grid at a later point in time.
No Violation of EU Law
The BGH notes that the EU Electricity Directive2 and the EU Electricity Regulation3 contain objectives for promoting BESS, including the removal of unnecessary investment barriers. However, it classifies these as political objectives, which are to be implemented by the Member States and do establish a directly enforceable right to exemption from costs. Therefore, the BGH does not see a violation of EU law in charging BESS operators building cost subsidies.
Implications
The decision is yet another case in recent history, in which the BGH strongly confirms the BNetzA's discretion. This sends a clear signal to the energy industry: the most effective place to shape rules on complex techno-economic issues is the regulatory process itself (e.g. consultations on BNetzA position papers) and not the courtroom in individual cases.
For financial investors in BESS projects, the ruling brings long-awaited legal certainty: operators of BESS projects are obliged to pay building cost subsidies in the same way as other grid users. This cost factor will have to be taken into account in the financial model for new BESS projects.
1 BNetzA, Position Paper,BK6p-06-003,27 March 2009.
2 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU.
3 Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity.
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