Remuneration of Hydrogen Grids in Germany

Just three weeks before the German Federal elections, the Federal Energy Ministry for Economic Affairs and Energy (BMWi) published a draft ordinance on the costs and charges for access to hydrogen networks (Ordinance) for market consultation.

Background

The latest reform of the Energy Industry Act (EnWG) introduced a first framework for hydrogen-only grids, allowing operators of hydrogen grids (H2GO) to opt for a cost-based remuneration via grid fees based on costs that are approved by the regulator, while in return, granting grid access on a non-discriminatory basis.

The new Ordinance will set the framework for the calculation of grid charges and will regulate the underlying calculation of the costs of the grid. It is intended to create an initial legal framework until further EU legislation is introduced.

Step 1: Determining the cost base

The principles for determining the hydrogen grid costs will be similar to those of gas and electricity network operators: 

• Only the costs of efficient and structurally comparable hydrogen grid operators may be taken into account. 
• Like for German gas and electricity grids the cost base contains imputed elements, including imputed depreciation, imputed taxes, and an imputed return on equity.
• The exact percentage of the imputed return on equity is still missing in the current draft. As of 2028, the Federal Network Agency (BNetzA) is to determine the interest rate on equity.
• Operators of hydrogen grids may also only receive a return on equity on not more than 40% of the equity required for operations.  
• Once depreciated  - and thus financed via the grid fees - grid components cannot be capitalised again in the balance sheets (so-called prohibition of depreciation below zero). However, special provisions are to apply to rededicated gas pipelines that were first capitalised before 2006 (old installations).

Step 2: Calculating the grid fees

The way the cost base is to be transposed into hydrogen grid fees is far more straight forward compared to the rules for gas and power grids: there are no regulatory periods, no built-in incentives to lower grid costs over time, and comparably little control by BNetzA.

H2GOs are to determine their grid fees on the basis of planned costs for each calculation period (= one business year). In doing so they are largely free to determine the grid fees, as long as: 

• they ensure grid connection and access on reasonable and non-discriminatory terms, and
• the grid fees are calculated in a way which is suitable to cover the grid costs.

H2GOs may also decide to split their grid into separate grids with separate grid fees.

Step 3: Plan vs. actual comparison

After each calculation period, H2GOs are to compare their grid fee revenues with the original planned costs. Any shortfall or increase in revenue is to increase or decrease the grid costs in subsequent years on an annuity basis. It is at the discretion of the H2GOs over how many years (max. 10) they distribute the cost difference.

BNetzA is to sign off the cost planning as well as the costs actually incurred. However, if BNetzA does not grant its approval within the given time-frame (three months for planned costs and 15 months for costs incurred) the H2GO may include these costs into its calculations anyway.

What’s next?

After the consultation, the finalised draft of the Ordinance needs to be adopted by the Federal Government and afterwards be approved by the Bundesrat (i.e. the parliamentary chamber representing the German Federal States). The Ordinance is intended to enter into force the day after its publication in the Federal Law Gazette.