Reducing gas consumption in the energy sector

In July 2022, an amendment to the Energy Industry Act (Energiewirtschaftsgesetz, EnWG) laid the groundwork for reducing gas consumption in the electricity sector, this being done in the backdrop of an impending natural gas shortage. Sections 50a to 50e of the Act seek to increase the amount of electricity generated with coal and oil, while Sections 50f to 50h introduce measures to reduce the amount of electricity produced using gas and increase flexibility in gas supplies.

Overview

There are two pillars on which the Act is based. The first pillar (Section 50f EnWG) includes the approval of rules on:

• a) the rapid limitation of the use of gas-fired power plants; and
• b) the reduction of gas consumption in power generation in the event of a threat to the gas supply system.

The second pillar (Section 50g EnWG) helps make existing gas supply contracts more flexible. Additional incentives, backed by information requirements laid out in Section 50h EnWG, will be established to help large end customers conserve gas and make it available on the market. As a result, the gas that is not consumed is available where it is needed most.

Pillar 1: Reduction of gas-based power generation by legal decree

Section 50f EnWG empowers the German federal government to issue decrees that help temporarily reduce gas consumption in the electricity sector. The generation of electricity from natural gas may be curtailed or halted for up to six months if an alert or emergency level has been declared in accordance with Article 8 of Regulation (EU) 2017/1938 in conjunction with a natural gas emergency plan from the Federal Ministry of Economics and Climate Protection. The supply of gas to protected customers must be maintained, however. Precise details will be provided in the decree, including the size of the affected plants, how the reduction in electricity generated from natural gas will be implemented and the amount of possible fines.

Pillar 2: Flexibility of the gas supply

The provisions of Section 50g EnWG ensure that gas-fired power plants and industrial processes can continue to operate on a large scale despite developments on the energy market, as gas supply contracts provide for a fixed volume structure and resale is therefore often not possible. These structures provide no incentive for end customers to consume less gas. Pursuant to Section 50g para. 1 EnWG, in the case of gas supply contracts that include minimum purchase volumes, all contractual clauses that prohibit the resale of unused gas will be declared null and void. Threshold values were not used, since fixed quantity structures are common for contracts with large customers. Section 50g para. 2 EnWG stipulates that the end customer of a gas supply contract has the right to return the volumes of gas not procured from the gas supplier. This includes supply contracts for end-user plants with a connected load of 10 MW or more. This right is designed to ensure that end customers receive the current wholesale price from the gas supplier for unused volumes of gas. In return, the gas supplier can deduct 10 per cent across the board from the amount refunded. This is done to offset the cost of recovering and reselling the gas, which can be charged against the amount refunded to the end consumer. The aim here is to achieve an effective allocation of gas on the market. In the event of a reduction in gas supplies, the right of the gas suppliers to amend the contract due to force majeure remain unaffected by this measure.

How this relates to the Energy Security Act

Section 50i EnWG states that provisions of the EnWG pertaining to the reduction of gas consumption in the electricity sector shall not affect the provisions of the Energy Security Act (Energiesicherheitsgesetz, EnSiG). Accordingly, measures laid out in Section 50f EnWG as well as measures set forth, for example, in Section 1(1)(1) and Section 24 EnSiG can be carried out independently of each other and in parallel. The relevant requirements for this have been fulfilled.

Evaluation

Pursuant to Section 50j EnWG, the German government must decide by 12 July 2023 on whether it is necessary and appropriate with regard to the impact on the energy industry and climate protection to maintain the measures laid out in Sections 50a to 50h EnWG.

Irrespective of this, the described measures are temporary under the terms of Section 121 EnWG. The law stipulates an appropriate transitional period lasting until 31 March 2024, after which no further measures are expected. As a precautionary measure, however, winter 2023/2024 was included.

Furthermore, the provisions of Section 50g EnWG, which are designed to ensure the necessary flexibility in the use of fossil-fuel energy sources for winter 2022/2023, expires on 31 March 2023.

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