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The end of the self-consumption facility (?)

In its ruling of November 28, 2024 - C-293/23 - the European Court of Justice is likely to have put an end to a popular energy supply option as well as a long-simmering dispute between the higher courts of the federal states. The construction of the self-consumption facility as a privileged network for smaller, decentralized generation plants is not compatible with the Internal Market for Electricity Directive.

Initial question

In order to promote the energy transition, since 2011 the German legislator has provided for privileged treatment of smaller grids into which electricity from decentralized generation plants (such as combined heat and power plants in particular) is fed and drawn. These grids are only subject to the regulations of the Law on energy management (“EnWG”) and the Renewable Energy Sources Act (“EEG”) to a limited extent. There are no approval and reporting obligations for these grids. In particular, no grid fees must be charged, which has led to cheaper electricity and heat purchases by end customers.

Self-consumption facilities are legally defined in accordance with Section 3 No. 24a EnWG as energy facilities for the supply of energy which

  • are located in an adjacent geographical area,
  • are connected to an energy supply grid or a generation plant,
  • are insignificant with regard to guaranteeing effective and distorted competition in the supply of electricity and gas and
  • are available to anyone free of charge and without discrimination for the purpose of supplying the connected end consumers by means of transmission, irrespective of the choice of energy supplier.

The various geographical and legal requirements have been the subject of disputes in legal literature and between the higher courts over the years. In a case from 2019, the Federal Court of Justice was given the opportunity in 2023 to ask the European Court of Justice whether this legal regulation is compatible with the European Union's Internal Market for Electricity Directive.

The reason for this was a project by a Zwickau housing cooperative that wanted to supply four blocks of flats with 96 residential units on an area of 9.000 m² and six blocks of flats with 160 residential units on an area of 25.500 m² with cheap energy and heat via two combined heat and power plants. The local grid operator refused the connection as a privileged self-consumption facility, citing the size and structure.

Decision of the ECJ

The European Court of Justice has now ruled that the German provisions of the Energy Industry Act are not compatible with the Internal Market for Electricity Directive (Directive 2019/944 of 5 June 2019 and its predecessor directive).

According to the directive, so-called distribution networks may only be differentiated in terms of voltage level and the category of customers to whom the electricity is passed on. Germany should not have used or created additional criteria itself. Exceptions to the obligation to treat all grids equally could only be made by the Directive itself (e.g. for citizens' energy cooperatives or closed distribution systems for industrial and commercial customers). The German construction of the self-consumption facility does not meet these exemption requirements.

The German legislator was therefore not allowed to treat self-consumption facility differently from other distribution grids. The uniform application of the Internal Market for Electricity Directive must be ensured. This is also required by the principle of equality.

Effects on practice

The ruling initially only has an effect between the parties to the legal dispute and therefore not directly for all operators or beneficiaries of self-consumption facilities. It was a preliminary ruling procedure intended to answer a specific legal question in a specific legal dispute.

However, the German legislator is now forced to act, as national courts will no longer be allowed to base their judgments on these provisions of the EnWG in future. In particular, grid operators will no longer apply the provisions of the EnWG on self-consumption facilities. This will result in considerable legal uncertainty for existing and planned installations and their operators. Whether and how the legislator will remedy this situation remains to be seen. However, the existing exemptions for self-consumption facilities are likely to be a thing of the past.

As things stand at present, operators of customer systems will in future be obliged to comply with all regulations for distribution system operators, from the licensing obligation to the levying of grid fees and surcharges to the reporting and publication obligations of the grid operators. The classification as a self-consumption facility was also important for the connection of photovoltaic systems to these local grids and the so-called electricity price brake. In particular, this will result in additional work and costs. Operators are required to review their contracts and structuring options now. For commercial and industrial end customers, the closed distribution networks in accordance with Section 110 EnWG - which are unobjectionable under EU law - could experience a renaissance. For private end customers, however, this path is ruled out.

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