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Germany’s Reaction to the Energy Crisis

Following Russia's actions in Ukraine, an energy crisis unfolds in Europe and particularly in Germany. The looming threat of Russia suspending gas deliveries to Germany, or Germany ending the procurement as part of a sanctions package, respectively, could lead to a drastic increase in energy prices and shortage in gas supply. A supply reduction is especially troublesome for Germany, as it relies heavily on Russian gas imports. Germany imports 95% of gas it requires in total and 55% of that from Russia.1 Already, some gas-reliant industrial companies in Germany have to shut down production, since the sharp increase in gas prices makes production economically unviable.2 In a worst case scenario, households and essential social services relying on gas for heating may have reduced heating capacity. Against this background, we give a brief overview of the legal background to potential implementation of emergency action (1.) and main energy policy measures (2.) initiated.

 

1. Emergency Measures

In light of the events in Ukraine and concerns over natural gas and oil supply, the EU is pushing to overhaul its energy security strategy. This is reflected in the European Commission's proposal of 8 March 2022, outlining the "REPower EU" plan to make Europe independent from Russian fossil fuels well before 2030, starting with gas.

This plan became even more urgent, when Russia announced on 23 March 2022 that it would only be accepting payments for gas imports in Russian ruble. In a joint declaration on 28 March 2022, the G7 countries rejected payment in ruble. 

To keep up with the fast-paced developments, the German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, "BMWK") announced on 30 March 2022 the early warning level of the so-called Emergency Plan for Gas (Notfallplan Gas). As a consequence, the developments in the German gas market are closely observed by the German authorities in order to be prepared for potential restrictions or interruptions to gas supply.

Exacerbating the situation, BMWK was informed of an alleged indirect acquisition of Gazprom Germania by two Russian investors, who ordered the liquidation of Gazprom Germania. As Gazprom Germania operates critical infrastructure in Germany, it is of outstanding importance for German gas supply. As a step to ensure security of supply and to hinder liquidation of Gazprom Germania, the BMWK made a historically unprecedented decision on 4 April 2022 and temporarily3 appointed the German Federal Network Agency ("Bundesnetzagentur") as fiduciary for Gazprom Germania.

 

1.1 Legal Framework

The German Emergency Plan for Gas is the main instrument of the BMWK's recent efforts to ensure security of supply. As the German Emergency Plan for Gas is based on an EU regulation, we will briefly give an overview of its legal basis in EU law (a) and will then describe the measures possible under the German Emergency Plan for Gas (b).
 

(a) EU Law

On the European level, efforts to ensure security of supply of gas originated with the Russian-Ukrainian gas crisis of January 2009 when gas supply from Russia was disrupted.4

In order to be prepared for recurring situations, the EU passed Regulation (EU) No 994/2010, which has been replaced by Regulation (EU) 2017/1938 ("SoS Regulation").5 The Regulation aims to ensure that all the necessary measures are taken to safeguard an uninterrupted supply of gas throughout the Union.6 It especially targets the protection of household customers, customers providing essential social services and small- or medium-sized enterprises, since they are particularly vulnerable to disruptions of the gas supply.7

To achieve those aims, the SoS Regulation allows for exceptional measures to be implemented when the gas supplies required by customers can no longer be delivered and lays down security of supply standards that are sufficiently harmonised in the EU. The SoS Regulation distinguishes between three gradually intensifying crisis levels (early warning level, alert level and emergency level)8 in order to ensure a proportionate system of crisis management.9

The SoS Regulation as such is directly applicable in the EU member states. Despite this, it requires implementation by the EU member states regarding its details, especially regarding the emergency plan.

Overall, the SoS Regulation contains requirements for the content of emergency plans to be observed by the member states when implementing the emergency plan.
 

(b) German Emergency Plan

As required on the EU-level, Germany implemented the German Emergency Plan for Gas (Notfallplan Gas). The Emergency Plan for Gas provides a legal framework tying together the possible measures under German law. In order to secure enforcement of the Emergency Plan for Gas, the German legislator incorporated certain provisions into existing German law. The German 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 (Verordnung zur Sicherung der Gasversorgung in einer Versorgungskrise, "GasSV") therefore provide for a legal basis for authorisation to intervene.

In implementation of the SoS Regulation, the German Emergency Plan for Gas distinguishes
between three levels (early warning level, alarm level, emergency level), which provide for different measures to be taken either by the relevant market players10 or the authority. Responsible for declaring the early warning and alarm level is the BMWK. The emergency level is declared by ordinance of the German government. 

At the early warning and alarm level, the relevant market player has the competence to initiate certain measures in order to overcome the supply disruptions. At the emergency level, the emergency plan allows for additional state intervention to guarantee gas supply to cover vital needs, with particular attention given to protected customers.

In the following, we will give a brief overview of the measures set forth in the German Emergency Plan for Gas distinguishing between the levels.
 

(i) Early warning and alert level

To guarantee the continued supply of natural gas, gas undertakings utilise market-based measures. The emergency plan provides an indicative and non-exhaustive account of such measures, without implying any specific sequence.

These measures include:

  • Optimisation of load flow within the gas networks and with other system operators in the market area to make maximum use of transmission capacities available;
  • Redistribution of volumes of natural gas in collaboration with system operators in Germany and in neighboring countries;
  • Load flow commitments, i.e., contractually binding commitments between gas undertakings to redistribute or provide gas flows at certain entry or exit points; and
  • As ultima ratio, individual transmission or distribution system operators are entitled and obliged to adapt all gas input, gas transport and gas offtake in their systems.11 In other words, supply of customers can be reduced or completely cut as a last resort.

     

(ii) Emergency level

On the emergency level, the Bundesnetzagentur has the competency for non-market-based measures side by side the market actors' measures described above. These non-market-based measures have a stronger impact on all market actors, because the Bundesnetzagentur can intervene in the market and issue instructions on how to distribute the gas load.

According to the GasSV, the Bundesnetzagentur or the states (Bundesländer) have the authority to issue instructions to companies that produce, purchase or sell gas or to consumers. The emergency plan lists examples of such instructions to be issued.12 These measures include:

  • Instruction to increase the level of offtake from gas storage;
  • Instruction to substitute gas with oil or other fuels;
  • Instruction to use electricity not generated by gas;
  • Instruction to restrict the generation of electricity in gas-fired power plants;
  • Instruction to increase the production level of gas;
  • Instruction regarding the heating of public buildings;
  • Instruction to switch off industrial customers;
  • Instruction to use the stored stocks of alternative fuels;
  • Instruction to final consumers to reduce the consumption of gas; and
  • Instruction to large consumers to reduce the consumption of gas.

According to the emergency plan, the occurrence of the individual crisis levels depends on the severity of the disruption, the anticipated economic and technical implications and the urgency of remedial action at the national level.13 The levels do not need to be declared in order of their severity. The alert or emergency level can be declared immediately depending on the severity of the disruption and the urgency and the types of measures needed to rectify the situation.

Following the above, the Bundesnetzagentur will be competent to dispatch gas load flows, and to 
order measures, including shutdowns (i.e., shutting down network customers). Certain small and 
household customer groups that are worthy of protection are generally privileged and cannot be shut 
off (privileged customers).

Against this background, it is to be noted that there is currently no pre-determined guidance on some kind of shutdown order. The Bundesnetzagentur will rather have to take into account the state of emergency, efficiency of a shutdown to support security of supply and impact on the customer concerned. It is very likely to assume that power plants with a systematic relevance determined according to the EnWG14 would end up on the lower end of a shutdown priority list. This assumption complies with the industry association BDEW's guidelines on the ultima ratio measures as described above under (i), which treat such power plants as last but one to be interrupted, with protected customers being the last group.

In order to achieve planning certainty and a certain level of binding nature, the Bundesnetzagentur and the industry are currently working together on a more detailed plan. Among other measures, questionnaires are currently being sent out to gas customers in order to better assess the possible consequences and severity of a shutdown.

 

1.2 Political Measures

The German government has been initiating a number of policy measures over the past few weeks in order to mitigate the effects of a possible gas shortage and to reduce dependence on Russia. 

One of the political measures is the initiation of measures to switch to liquefied natural gas ("LNG"). In order to achieve the conversion as quickly as possible, the German government has announced that it will push ahead with the development of LNG-terminals. The German government is in this context in particular actively promoting the resumption of the construction of LNG terminals currently in the planning phase by shortening the approval process.

Besides the (accelerated) resumption of the construction of the LNG terminals, the German Minister of Economic Affairs (Wirtschaftsminister) Robert Habeck visited both Qatar and Norway in order to address a possible procurement of LNG. In mid-March 2022, each country respectively announced a long-term partnership with Germany for LNG imports to Germany. 

Furthermore, the German state-owned investment and development bank ("KfW") is providing financial support for German companies by granting short-term credit lines. Due to the sharp increase in prices on exchanges, some companies can no longer afford the increase in security deposits (so-called margin call), which they are obligated to submit.

To prevent default on the margin calls and a wave of insolvency in the energy sector, the Federal Ministry of Finance (Bundesministerium der Finanzen) plans to increase the federal government's guarantee authorisation as part of a supplementary budget. Once the supplementary budget is passed the KfW will be able to draw on a credit line in the amount of EUR 100 billion to provide financial support to the companies between February and September 2022. The mentioned information regarding the German governments plan and the KfW is publicly accessible.15

In addition, on 6 April 2022, the BMWK submitted a legislative package comprising a total of more than 500 pages ("Easter Package") to the Federal Cabinet (Bundeskabinett). The Easter Package aims to implement energy policy contents of the coalition agreement and proposes amendments to the Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz), the Wind Energy at Sea Act (Windenergie-auf-See-Gesetz), the German Federal Requirements Plan Act (Bundesbedarfsplangesetz), the EnWG and other energy-related laws and ordinance. The primary goal of the Easter Package is to accelerate the expansion of renewables energies.16 In order to achieve this goal, the core of the Easter Package stipulates the principle that the use of renewable energy is in the overriding public interest (überragendes öffentliches Interesse) and serves public safety. The expansion of renewable energies on land and at sea shall be raised aiming that Germany's electricity supply will be based almost entirely on renewable energies by 2035.

 

1 https://www.iwd.de/artikel/erdgas-fatale-abhaengigkeit-538135/#:~:text=Mehr%20als%20die%20H%C3%A4lfte%20des,Zum%20Vergleich%20(Grafik)%3A
2 https://www.reuters.com/article/ukraine-crisis-germany-steel-idUSL5N2VD4U4
3 Until 30 September 2022.
4 Recital 31 of SoS Regulation.
5 Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010.
6 Recital 3 of SoS Regulation.
7 Recital 23 of SoS Regulation.
8 Art. 11 No. 1 SoS Regulation.
9 Recital 55 of SoS Regulation.
10 According to page 9 of the Emergency Plan Gas market player (Marktteilnehmer) means any party involved in the gas value chain, i.e., production, distribution or consumption of gas.
11 See section 16 para. 2 EnWG.
12 See page 27 of the Emergency Plan for Gas for the Federal Republic of Germany.
13 See page 17 of the Emergency Plan for Gas for the Federal Republic of Germany.
14 See sections 13a et seq., in particular 13f EnWG.
15 See https://bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Schlaglichter/Entlastungen/massnahmenpaket-fuer-vom-krieg-betroffene-unternehmen.html (last accessed 20 April 2022).
16 The expansion target is increased insofar as at least 80 percent of Germany's total gross electricity consumption is based on electricity from renewable energy sources by 2030.

 

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