Proposals for an adjustment of § 35h EnWG to ensure a secure gas storage supply in Germany

Underground storage facilities will remain essential to ensure a reliable energy supply, even if demand for natural gas will decline on the way to carbon neutrality. In order to prevent an uncontrolled decommissioning of gas storage facilities, the German legislator introduced § 35h EnWG during the Ukraine crisis. However, § 35h EnWG has several shortcomings in its practical implementation that need to be addressed. 

In this context, Uniper Energy Storage commissioned Frontier Economics ("Frontier") to identify an easy-to-implement way to effectively address these shortcomings of § 35h EnWG and thus improve the functionality of the law. 

From an economic point of view, § 35h EnWG has at least three overarching deficits, for which we propose the following solutions:  

Deficit 1: The process for assessing decommissioning applications is not sufficiently defined

To address this, we propose to define assessment criteria, to base  the assessment on a system-wide needs analysis, to set deadlines including a presumption of consent, and to introduce a de minimis rule.

Deficit 2: Significant uncertainty about the compensation scheme

In order to prevent damage to investor confidence, compensation should be granted irrespective of whether there is an unreasonable economic hardship, analogous to the corresponding conditions for decommissioning decisions for electricity production and storage facilities in § 13c EnWG. Furthermore, the costs to be reimbursed need to be defined more precisely. Reimbursement of the difference between costs and any revenues from selling storage services can be made by the federal government (as is currently the case) or by means of a levy.

Deficit 3: Unclear deadlines for decommissioning refusals and lack of follow-up regulations

Finally, with regard to the duration of the decommissioning refusal, deadlines and follow-up options (decommissioning, continued operation as a natural gas storage facility or conversion into a hydrogen storage facility), including their implications, need to be specified.

The policy paper (in German) can be downloaded here.