The ECJ ruling on customer systems and its impact on tenant electricity models and other decentralized supply concepts – pv magazine Germany

The decision

The ECJ had to decide on the EU law conformity of the German regulation in Section 3 No. In accordance with Section 24a of the Energy Industry Act (EnWG), which ensures that energy systems through which third parties, for example tenants, are provided with electricity are considered “customer systems” and not are treated as distribution networks – and are therefore completely exempt from network regulation under energy industry law.

The reason for the judgment was a question submitted by the Federal Court of Justice as to whether the requirements of the EU's Internal Electricity Market Directive conflict with a national regulation such as this regarding the German customer system. The legal dispute that led to the question referred concerns a specific supply constellation in Zwickau, which, according to the German legal situation and the specification developed by case law, would have to be classified as a “customer system”, which the BGH obviously did not like in the end.

Rightly so, because the ECJ considers the regulation to be contrary to trade union law, as is now clear. Even if the question referred and the ECJ's answer are formally tailored to the individual case, the reasoning is very fundamental – and therefore extends far beyond the individual case.

The ECJ is of the opinion that an EU-approved person is not permitted to “define” certain electricity distribution systems for supplying customers from the definition of distribution network. Although the Member States have some leeway here, a uniform interpretation is necessary because the term is of central importance for the internal electricity market. The directive only specifies the voltage level (low, medium, high voltage) and the type of customers supplied (wholesalers or final consumers) as the relevant criteria for distribution networks. If such a system is operated to supply electricity to the named customers, it is a distribution network. And the member states are not allowed to deviate from this result specified by trade union law through the further introduction criteria. According to the ECJ, it is also inadmissible to impose additional requirements on the definition of network operator. And finally, as a legal consequence, network operators may be completely exempt from certain obligations. However, this only applies within the framework that is expressly permitted by Union law – which in turn does not apply to customer systems.

The meaning

Unlike the Federal Constitutional Court, the ECJ has no formal authority to reject norms and does not make binding decisions in individual cases, but actually only provides guidance on the interpretation of Union law. But this should not be misunderstood to mean that his judgments are meaningless. The opposite is the case because German courts and also the authorities have to follow these instructions – and therefore have to disapply national regulations if they do not comply with trade union law according to an ECJ ruling.

Based on the ECJ's argument, a number of supply constellations in Germany that previously claimed customer facility status should be treated as distribution networks. In fact, the constellations of customer systems are quite diverse. This primarily applies to power supply systems in residential or commercial properties if various parties are involved in the buildings. That's how it was in the autumn that prompted the Federal Court of Justice to refer the matter to the ECJ: there, numerous tenants in two large properties are supplied not only with heat but also with electricity from cogeneration systems. This is a distribution network, i.e. the message that the ECJ sends.

But other and even smaller systems are equally affected if third parties are believed to be involved. And this also means tenant electricity models and communal building supply are not left out. Another field of application are constellations in which electricity from renewable energies is transported via line systems, such as lines belonging to a special infrastructure company, either in order to then deliver it directly to third parties or to feed it into the general supply network. Distribution networks could exist in all of these constellations. Only pure self-generation constellations are safe because they do not serve to supply customers. A direct line that connects a generation plant to an individual customer is also unlikely to be a network in this sense.

Almost more important than the question of whether a system should be classified as a distribution network in the future is the question of what legal consequences are associated with it. The consequences are far-reaching: In principle, the entire set of regulations for network regulation under energy industry law applies, at least to the extent that this is specified under European law. This includes, for example, the unbundling requirements that begin with accounting unbundling, which is likely to pose considerable challenges (to put it cautiously) to many operators of decentralized supply concepts. The question also arises as to whether there is an obligation to charge network fees in such situations. These would then also be subject to regulation. If this is the case, it would not only involve a lot of bureaucracy, but would also be devastating from a financial perspective, because some projects are only economically worthwhile because of the savings in network fees.

And there are countless follow-up questions that, depending on the case, can have significant effects and for which there are still no definitive answers. Just one example: The tenant electricity surcharge (Section 21 Paragraph 3 EEG) and the communal building supply (Section 42b EnWG) expressly require that delivery takes place “without being routed through a network”. Whether, because of the ECJ ruling, network transmission is always to be assumed – and therefore neither tenant electricity nor communal building supplies nor have a practical scope of application? This has not yet been clarified. However, the clearly better reasons speak against it. The Internal Electricity Market Directive does not make any binding requirements in this area, so there is no conflict here. And the EU Renewable Energy Directive expressly allows and promotes “self-suppliers acting jointly in the field of renewable electricity” – obviously on the assumption that in such constellations there is not necessarily a network.

The consequences

Now everyone has to do their homework: The operators of decentralized supply concepts have to check what effects the ECJ ruling has in their specific case. It should also be examined whether there are possibilities, for example, to create an in-house generation constellation through contractual redesign.

The regulatory authorities and courts are required to explore what is really mandatory under trade union law and how the systems can be regulated with a sense of proportion.

And the legislature? After the federal election at the latest, he must check which exceptions there are that comply with EU law that he can use for decentralized generation concepts – the possibilities of the “citizen energy communities” provided for in the EU Internal Electricity Market Directive, for example, are far from being exhausted in national law.

And where Union law currently sets limits, Germany must try to bring about changes at the European level. Perhaps the ECJ ruling can even help raise awareness in Brussels (and also in other member states) that it makes no sense to impose the full force of network regulation on all decentralized supply concepts – and that the current directive provides exceptions unfortunately ignores the reality of decentralized supply concepts (at least in Germany).

– The author Sebastian Helmes is a specialist lawyer in administrative law and partner at the international law firm Dentons in Berlin. He has been advising companies and the public sector on issues relating to energy and infrastructure for 18 years, with a focus on decentralized supply and renewable energies. He is a lecturer in energy law at the Technical University of Braunschweig and the author of numerous articles on current issues of energy and environmental law –

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