The fine print in the "electricity price brake" - or: Why the German government is just opening Pandora's box and endangering the energy transition

The fine print in the "electricity price brake" - or: Why the German government is just opening Pandora's box and endangering the energy transition

Special times call for special measures. Who would have thought it possible a year ago that a brutal war of aggression would take place in the middle of Europe and that Germany would also feel the consequences so clearly - not directly in military terms in its own country, but in terms of our energy supply, among other things.

In this situation, the German government must remain capable of acting and react to the extreme situation, which it is doing partly more, partly - see gas surcharge - less successfully. A central element of the countermeasures is the so-called "electricity price brake", which is currently going through the legislative process. A first draft was presented on November 22. However, what the German government is proposing in the fine print must not become law in this form, because the consequences for the energy transition would be unforeseeable.

We are talking about the final and immediate abolition of the so-called "avoided network charges" provided for in Section 120 of the Energy Industry Act and Section 18 of the Electricity Network Charges Ordinance. Avoided network charges are paid out by the connection network operator to generation plants when decentralized electricity generation counteracts consumption in a network area. Specifically, a local network operator pays a lower amount of network charges to the upstream network operator if a decentralized generator feeds into the network during times of peak annual load, thereby reducing the network operator's peak annual load. This saving is then passed on by the grid operator to the distributed generator and paid out.

There is widespread consensus in the industry that the grid charging system is in urgent and fundamental need of reform. The entire system of grid charges, which is geared purely to peak loads, no longer fits into an era in which the need for grid expansion is often driven by renewables and not by the load side. It will be interesting to see how the reforms develop in the near future. However, it was recognized years ago that the "avoided network charges" are a discontinued model. For this reason, it was decided to only pay them to plants that are connected to the grid by December 31, 2022 at the latest. This also applies to energy storage systems in their function as feeders, i.e. "electricity generators", when they are discharged.

This seemed to settle the matter of "avoided network charges" conclusively - until the publication of the draft bill on the electricity price brake. You have to look very closely, but the one hundred and sixty-one page package also provides for the abovementioned §120 EnWG and §18 StromNEV to be dropped. Without replacement, with immediate effect and without transitional arrangements. The decision comes as a surprise, but the associated justification for this immediate abolition of avoided network charges is included in the draft and leaves no room for doubt: the regulation is to be stopped immediately, with the costs of the measure being used as the argument. It states lapidary: "In principle, a grandfathering cannot be claimed for network charge regulations. The deletion of Section 18 as of January 1, 2023, therefore now completely ends these payments, which most recently accounted for five percent of the distribution system operators' network charge."

The German government is opening a Pandora's box here, because the question is: If there is no grandfathering for central elements of the business model of battery storage and other energy storage systems, how is investment security to be established?  

It should be noted that almost 500 MW of battery storage projects will be connected to the grid this year, of which over 120 MW have been projected by Kyon Energy. The majority of these storage facilities have included the revenues from the "avoided grid fees" as a fixed factor in the project case, because it is almost 30% of the total expected revenues. The facilities would not have been realized in this form if the instrument of "avoided network charges" had not existed. Does the German government really not want these storage facilities?

And if the dams break here and there is no longer any grandfathering, what supposed subsidy will be stamped out next without warning? As long as this question hovers over future investment decisions, investors will be very reluctant, possibly in the long term. At the very least, the necessary storage expansion will be significantly delayed and made considerably more expensive due to rising expected returns. The expected 5% savings in network charges in connection with the envisaged abolition of avoided network charges, of which only a tiny fraction is attributable to future investments such as battery storage, appear more than modest in view of this prospect.

This must not happen and the Electricity Price Brake Act must not be passed in this form under any circumstances. It is to be hoped that the idea of abolishing avoided network charges in their current form will be quickly buried and soon forgotten, just as the gas levy was recently. Presumably, when the draft was being prepared, the advisors at the Federal Ministry of Economics were not aware that, in addition to various fossil energy sources, energy storage facilities would also be affected by the measures, and to a particularly high degree. Our hope now is that transitional and/or exemption regulations for storage facilities will now be created as part of the actual legislative process for the electricity price brake in the Bundestag.  

In the next few months, we also hope to see a thorough reform of the Energy Industry Act so that energy storage facilities can be defined as facilities that are neither end consumers nor producers of electrical energy, but rather energy storage facilities as recently defined in the Energy Industry Act. The enormous advantages of storage facilities for securing grid operations must also be reflected there so that storage facilities can fully play to their technical strengths in the regulatory framework and further accelerate the energy transition. However, this should not distract from the damage limitation that is now immediately necessary in correcting the "electricity price brake".

- Author: Benedikt Deuchert, Head of Business Development & Regulatory Affairs

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