Following coordination within the Federal Government, the Federal Ministry for Economic Affairs and Climate Action today announced the second level of the Emergency Plan for Gas, the alert level. Security of supply is currently ensured, but the situation is tense. The Emergency Plan for Gas has three levels; the third level is the emergency level.
The reason why the alert level has been announced is the reduction in gas supplies from Russia which has occurred since 14 June 2022, and the persistently high price level on the gas market. Whilst the gas storage levels are higher than last year, with the facilities 58% full at present, additional measures will almost certainly need to be taken to have the storage facilities 90% full by November, should the Russian gas deliveries via the Nord Stream 1 pipeline remain at the low level of 40%. This is shown by (Federal Network Agency). This means that there is a disruption to the gas supply which is resulting in a significant deterioration of the gas supply situation; it is therefore necessary to announce the alert level. Germany’s European partners have been informed of the decision.
Federal Minister for Economic Affairs and Climate Action said: “Even if it is still possible at present to purchase and store volumes of gas on the market, the situation is serious, and the winter will come. We can’t pretend otherwise: the reduction in the gas supplies is an attack on our economy by Putin. It is manifestly Putin’s strategy to sow uncertainty, to drive up prices, and to split our society. We are defending ourselves against this. But we as a country have to take a difficult path. Even if we don’t feel it yet, we are in the midst of a gas crisis. From now on, gas is a scarce asset. Prices are already high, and we need to brace ourselves for further increases. This will impact our industrial output and impose a great burden on many consumers. It is an external shock.”
The Minister went on to stress the following point: “We in the Federal Government are doing our utmost to mitigate the effects and to maintain security of supply. Filling the gas storage facilities is now our top priority. We are working on alternative gas supplies, and are pressing full steam ahead with the construction of the necessary infrastructure. We are accelerating the expansion of renewable energy at an unprecedented rate. This task needs to be tackled by the entire nation. But we can cope with it if we pull together in a spirit of solidarity – Federation, Länder and municipalities, individual citizens, companies, civil society. Conserving energy is the priority for the coming months. All consumers – in industry, in public institutions and in households – should continue to cut their gas consumption as far as they can so that we can get through the winter. We as a government are pressing ahead with energy efficiency measures, and are saving energy within our own ministry.”
In order to cut the consumption of gas to generate power, the Federal Government, as announced on 19 June, will draw on more coal-fired power plants which have been on security stand-by. The Federal Ministry for Economic Affairs and Climate Action has already written to the power plant operators and asked them to take the necessary steps. The corresponding Act on the Maintenance of Substitute Power Stations, which makes it possible to draw on the reserve power stations to replace gas-fired generation, is currently passing through parliament. The Economic Affairs and Climate Ministry is preparing all the necessary ordinances so that they can be used precisely as required once the legislation is in force. “We are bringing coal-fired power plants back to the market, and cutting the volume of gas consumed. This is painful, because coal-fired power plants are simply toxic for the climate. But we have to do it for a transitional period in order to save gas and get through the winter,” said Habeck.
At the same time, the Federal Government has provided a credit line, initially of €15 billion, to fill the storage facilities, backed by a federal guarantee. “We are filling the gas reservoirs; they need to be full by the winter,” Habeck said. Also, a gas auction model is to be launched in the summer, incentivising industrial gas consumers to save gas. The Bundesnetzagentur set out the details of this model on 21 June 2022. Further details will follow in the coming weeks, so that the launch can take place swiftly.
“If even more measures are needed on top of these, we will take them,” said Habeck.
In order to ensure that we can tackle the gas crisis together, Minister Habeck will in the days ahead further intensify the dialogue with the business community, his counterparts in the Länder and the European Union, and also with consumer protection organisations, trade unions and environmental associations. “In this crisis, it is important to understand how different parties are affected, to pool our expertise and capabilities, and thus to keep arriving at better solutions. We will be learning throughout this crisis, and will repeatedly fine-tune our measures.”
The Minister also made this point: “We as the Federal Government will do what we can to cushion the impact on low-earners in particular. We won’t be able to alleviate all the effects, but we must help people who are already having to think twice before they spend anything and are fearful of their next heating bill. We in the Federal Government will therefore be discussing further action to help the public.”
At present, the Federal Government is not deploying the “price adjustment mechanism” offered by section 24 of the Energy Security of Supply Act. According to that section of the act, this mechanism can only take effect if the Bundesnetzagentur declares that there is a substantial reduction of total gas imports to Germany and announces this in the Federal Gazette; basically, there needs to be a persistent reduction in total gas imports. “This mechanism can be necessary in certain situations to stop the energy supply from collapsing. But it also has its downsides, so we are also working on alternative concepts. We need to keep the market up and running despite the high additional costs,” said Habeck.
Further explanations of the categorisation
1. The Emergency Plan for Gas
According to Art. 11 (1) of the European Regulation concerning measures to safeguard the security of gas supply (SoS Regulation), the alert level must be announced under Art. 11 of the Regulation where a disruption of gas supply or exceptionally high gas demand which results in significant deterioration of the gas supply situation occurs but the market is still able to manage that disruption or demand without the need to resort to non-market-based measures. Everyone saving gas is helping us to take precautions for a supply shortage.
The gas crisis team, which was set up when the early warning level was announced, is now meeting every day. The members of the gas crisis team include representatives of the Economic Affairs and Climate Ministry, representatives of the Bundesnetzagentur, the market area managers for gas and the long-distance gas grid operators, and it is supported by representatives of the Länder. Since the early warning level was announced in March, the gas crisis team has been meeting regularly in order to monitor the situation on the gas market in the light of daily reports from the long-distance gas grid operators and the market area managers, and to advise the minister and state secretaries of the Economic Affairs and Climate Ministry. Where necessary, the operators of the long-distance and distribution gas grids will take network-specific and market-specific measures in line with their responsibility in accordance with sections 16 and 16a of the Energy Industry Act. The European Commission and the neighbouring countries have been informed about the announcement of the alert level. The Economic Affairs and Climate Ministry is in permanent contact with the European Commission.
The Emergency Plan for Gas is based on the SoS Regulation, i.e. 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. It regulates the supply of gas in Germany in a crisis. The Emergency Plan for Gas contains three levels of alert: the early warning level, the alert level and the emergency level.
2. The new measures
Cutting gas consumption in the electricity sector
Given this impending gas shortage, Germany needs to significantly cut the consumption of gas used to generate electricity in order to offset the missing gas and thus to mitigate the repercussions of the gas shortage. For this reason, the Federal Government intends to set up a generation-side gas replacement reserve which can be called on until 31 March 2024. To this end, power stations which are already available as a reserve for the electricity system will be upgraded so that they can come back onto the market at short notice. This means that the quick deployment of coal-fired power plants will be made possible if needed in the electricity sector.
To this end, the Federal Government has put the necessary legislation in place to substitute the gas used to generate power. The federal cabinet adopted the Act on the Maintenance of Substitute Power Stations on 8 June 2022. The aim is for it to be adopted by parliament on 8 July 2022. In parallel, the Federal Ministry for Economic Affairs and Climate Action is working on the necessary statutory instrument so that the gas replacement reserve can be rolled out as soon as the legislation takes effect.
In 2021, gas covered approx. 15% of public power generation, but this proportion has probably declined in the first months of 2022. The measures to reduce gas consumption can expand the availability of power generation capacities in a critical gas supply situation by up to 10 GW, significantly reducing the amount of gas used to generate electricity.
Gas auction model for industrial consumption
A gas auction model is to be launched in the summer, incentivising industrial gas consumers to save gas. To this end, the market area manager Trading Hub Europe (THE), the Bundesnetzagentur and the Federal Ministry for Economic Affairs and Climate Action are developing a gas balancing energy product enabling industrial customers to work with their suppliers during times of shortage and reduce their consumption in return for remuneration that is based entirely on the price of the actual energy, making the gas available to the market (demand-side management). This will create an auction-style mechanism which incentivises industrial gas consumers to save gas, and this gas can then be placed in the storage facilities. The intention of the model is to keep as much gas as possible available for any times when there is a shortage in the coming winter.
The first details were set out by the Bundesnetzagentur on 21 June 2022. Further steps will now follow swiftly in coordination with THE and the market players.
3. Scenario calculations by the Bundesnetzagentur for the gas supply situation
The Bundesnetzagentur has calculated scenarios to ascertain the development of gas volumes up to June 2023. These scenarios show that there is a disruption to the gas supply. If the supplies through Nord Stream 1 remain down at the level of 40%, it will still be possible to have the gas reservoirs 90% full by 1 November as provided by the Gas Storage Act assuming that intra-European gas deliveries no longer fully take place and that gas consumption this winter is 20% below the usual level.
But the decisive point is to significantly reduce our consumption of gas even now, so that Germany’s own security of supply and that of our neighbours is ensured.