Legal Framework for Security of Gas Supply

The current geopolitical situation poses major new challenges for the German and European gas industry. In close contact with the authorities, the TSOs do everything in their power to ensure a stable supply at all times, even in the event of possible supply disruptions.

The legal basis for securing gas supply in the event of a crisis is the European Regulation on measures to safeguard security of gas supply (EU) 2017/1938 (SoS Regulation), which was amended in 2017.

Nationally, the requirements of the SoS Ordinance are implemented in the Energy Industry Act (EnWG), the Energy Security Act 1975 (EnSiG), and the Ordinance on Securing Gas Supplies in a Supply Crisis (Gassicherungsverordnung – GasSV).

In the course of the EnWG amendment, the Storage Levels Act also came into force on May 1, 2022. An amendment to the EnSiG was passed by the German Bundestag on May 12, 2022. The law entered into force on May 22. On September 30, 2022, the German Bundestag passed the third amendment to the Energy Security Act. The Federal Council gave final approval to EnSiG 3.0 on October 7.

At November 24, the Bundestag approved the coalition factions’ draft bill “amending the Energy Security Act and other energy industry regulations” (“EnSiG 4.0”). The aim of the now third amendment is to further strengthen crisis preparedness and crisis management tools. The Act stipulates that the Bundestag must be involved by means of a statutory order issued by the Federal Government if an imminent threat to or disruption of the energy supply is identified (Section 3 (3a) EnSiG). Another amendment specifies the regulation in § 23a para. 1 EnSiG regarding the possibility of expropriation of movable property required for the construction of natural gas pipelines. These include pipelines, documents, records and data. The Federal Council approved the amendment to the law on November 25 to.

SoS Regulation

The SoS Regulation serves to strengthen the internal market for natural gas and to provide for the event of a supply crisis. It defines the responsibilities and duties of companies, national authorities, and the EU Commission. It provides for a comprehensive catalogue of measures and the national implementation of a three-stage escalation system (early warning, alert, and emergency stage) in the event of a supply crisis. In addition, Member States will be required to define in advance, in the framework of prevention and contingency procedures, the envisaged crisis management, including preventive measures. The prevention and emergency plans are drawn up every four years by the Federal Ministry of Economics and Climate in cooperation with the gas industry and the Federal Network Agency.

The Gas Emergency Plan for the Federal Republic of Germany is the national implementation of the SoS Regulation. It includes three escalation levels.

  1. Early Warning Level: The Early Warning Level is the first level of the three-level Gas Emergency Plan. In doing so, the BMWK convenes a crisis team consisting of authorities and energy suppliers. Gas suppliers and operators of gas pipelines are required to regularly assess the situation and report to the federal government. Gas supply is not yet secured by government intervention, but by market-based mechanisms of market players (gas traders and suppliers, transmission and distribution system operators), such as the use of flexibilities on the procurement side, recourse to gas storage, optimization of load flows, or the request for external balancing energy.
  1. Alert level: In the second stage of the gas emergency plan, the state still does not intervene in the market. Securing supply remains in the hands of the market players, who have the same instruments at their disposal for this purpose as in the first stage.
  1. Emergency Stage: If the market-based tools from the first two stages of the emergency plan do not stabilize the supply situation, i.e., there is “exceptionally high demand for gas, significant disruption of gas supply, or other significant deterioration of the supply situation,” the government can declare an emergency stage by regulation. In the process, the Federal Network Agency becomes the “federal load distributor.” The state intervenes directly in gas distribution in close coordination with the network operators.

Certain groups of consumers enjoy the following benefits pursuant to Art. 53a EnWG special legal protection. These include households, social institutions (e.g. hospitals) and gas-fired power plants that also serve to supply heat to households. For them, a secure supply of gas must be guaranteed until the end.

The amendment of the SoS Regulation in 2017 introduced three additional pillars, which are intended to further enhance gas supply security, especially with regard to the European gas market. These are regional cooperation on common risks, the strengthening of solidarity between the Member States in the event of a crisis, and greater transparency through the provision of additional information.

Regional cooperation: A key element of the SoS Regulation is the strengthening of risk-related cooperation between member states. To this end, important cross-border risks to the security of gas supply in the European Union (EU) are identified and risk groups are defined on this basis. The risk scenarios within the groups are essentially based on the main supply routes relevant for natural gas supply in the EU. The risk groups serve as a basis for enhanced regional cooperation to increase the security of gas supply and allow for the agreement of appropriate and effective cross-border measures between all Member States concerned within and outside the risk groups along the supply corridors.

solidarity mechanism between neighboring member states: Another key element of the SoS Regulation is the principle of solidarity, according to which Member States are obliged to take solidarity measures to ensure the supply of vulnerable customers, e.g. household customers in directly neighboring Member States, in crisis situations. Germany has a special responsibility given that it has eight directly bordering Member States plus Italy, which is indirectly connected through Switzerland.

The SoS Regulation provides for solidarity between Member States as a last resort to maintain gas supply. Member States are only obliged to provide assistance if all available measures to maintain the supply of vulnerable customers have already been implemented in the Member State requesting solidarity.

Once a solidarity request is made to the related Member States, they are first obliged to offer to provide additional gas volumes in a market-based manner. This requires the requested Member States to request voluntary offers from market participants in their markets and to pass these on in aggregated form to the Member State in need.

If the market-based offers are not sufficient, additional non-market-based solidarity measures can be requested. Only in this second stage are the requested Member States obliged to restrict supply to customers in their own country who are not protected by solidarity, in order to offer the released gas quantities to the Member State in need on a solidarity basis.

The concrete contractual and operational implementation of solidarity actions shall be regulated and recorded in intergovernmental agreements between the responsible authorities of the Member States.

The Regulation More Solidarity through better coordination of gas procurement, cross-border exchange of gas and reliable price reference values, which was finally adopted on 19.12.2022, supplements the SoS Regulation with generally applicable rules for solidarity cases. In addition, the regulation introduced the European gas price cap.

EU regulation with regard to gas storage

On June 24, 2022, the Regulation of the European Parliament and of the Council amending Regulations (EU) 2017/1938 and (EC) No. 715/2009 with regard to gas storage entered into force. The aim of this regulation is to ensure that European gas storage facilities are filled before winter so that they can be shared by EU member states in a spirit of solidarity. With the entry into force of the Regulation, each Member State is obliged to store sufficient gas before winter. It also facilitates the transfer of gas between countries.

The regulation defines the level requirements for the winter. For example, member states’ gas storage facilities must be 80% full before the winter of 2022/2023 and 90% full before the start of subsequent winters. The EU aims to collectively reach a fill level of 85% of total EU-wide underground gas storage capacity in 2022.

“Gas Storage Act”

The Gas Storage Act (Section 35 a-g EnWG), which came into force on May 1, 2022, fundamentally redefines the responsibilities, measures and instruments with regard to gas supply security. The market area manager THE, a subsidiary of all transmission system operators in Germany, will thereafter assume additional tasks related to security of supply and will be given new tools to ensure security of supply in the winter half-year. The law provides for minimum storage levels on certain cut-off dates. The responsibility to achieve the intended levels lies primarily with the market players and is to be monitored and reported by the storage operators. In the event of non-compliance, THE may, in accordance with the requirements of the EnWG and with the approval of the BMWK, take supplementary measures to achieve the levels specified by law.

On July 29, 2022, the legally defined filling levels from the “Gas Storage Act” were increased once again by ministerial decree. Consequently, the following reporting date-related level specifications apply:

  • September 1 => 75%
  • October 1 => 85%
  • November 1 => 95%
  • February 1 => 40%

The process has a multi-stage structure. Initially, storage filling will be primarily market-based, supplemented by an initial tender for the new Strategic Storage Based Options (SSBO) instrument. If it is foreseeable that minimum filling levels will not be reached, additional instruments take effect. In the final step, THE itself can acquire and store physical gas.

Stage 1: The filling of the storage facilities is carried out by the market participants. In addition, THE may tender SSBO (market-based product) in the spring. In this way, a basic provision is to be established. Only prequalified vendors can participate in SSBO solicitations The first SSBO solicitations were issued on May 4, 2022.

Stage 2: THE conducts additional SSBO special alerts if continuous storage monitoring determines that injections are not occurring adequately with respect to the minimum level requirements as of the relevant cutoff date.

Stage 3: If the gas storage facilities continue to be insufficiently filled, THE can acquire and store physical gas itself. These steps do not represent a rigid cascade of measures to be followed, but may also be combined with each other. If storage users do not use booked storage capacities and it is foreseeable that the storage levels envisaged in the law cannot be reached as a result, another new instrument comes into play: these capacities are made available to THE (so-called “use-it-or-lose-it” principle). THE in this case either tenders SSBO or buys gas itself.

The costs (for tenders and purchase by THE) are passed on to the network users. The same applies – insofar as revenues are generated – to proceeds. THE will establish, publish and settle a new levy for this purpose. The levy is charged to balancing group managers in the market area.

The law is initially set to expire on April 1, 2025. A first evaluation of the new toolbox is already planned after the coming winter 2022/2023. Particular attention should be paid to the effectiveness of the measures as well as the issues of liquidity and costs.

EnSiG amendment

Another component of the legislature’s measures in the context of the Ukrainian war is the Act Amending the Energy Security Act and Other Acts (EnSiG Amendment). The aim of this amendment is to strengthen crisis preparedness and crisis management tools.

The amendment updates ordinance authorizations in the EnSiG. In other words, the federal government is given far-reaching options for crisis management in the event of a threat to or disruption of the energy supply. Additional special crisis prevention measures can take effect even before an immediate threat to or disruption of the energy supply. The amendment lays the legal foundation for such measures by clearly defining the requirements.

For example, operators of critical infrastructure can be placed under trusteeship if necessary, if they no longer adequately perform their duties and security of supply could thus be compromised. In the most extreme case, expropriation is also possible to ensure security of supply. In addition, regulations are introduced to strengthen European solidarity mechanisms.

In addition, amendments and consequential amendments to the EnWG to strengthen crisis prevention are part of the amendment. In the future, decommissioning of gas storage facilities must be notified and approved by the Federal Network Agency.

Among the changes is the newly introduced digital platform for natural gas to better manage gas reduction at companies. The platform is a central and exclusive instrument of the Federal Network Agency (BNetzA) to manage gas supply according to economic and other political criteria in the event of a gas shortage. The digital platform is built and operated by THE.