Key takeaways

• Due to the significant impact, companies should immediately check whether their existing or planned supply concept could be affected. In particular, this applies to decentralized supply infrastructures in a commercial or industrial context.
• Where this is the case, the implications of the ruling should be further analyzed: Does the ECJ's decision leave open at least the possibility of a continued regulatory exemption for the existing or planned supply concept or does its reasoning fundamentally preclude it?
• Possible alternative concepts should also be examined — e.g., contractual restructuring or the possibility of classifying the grid as a partially regulated closed distribution system (geschlossenes Verteilernetz).
• As the ruling is likely to require action by the German authorities and legislators, further legal developments should be closely monitored.

In detail

Background

The self-consumption facility exemption under German law

Section 3, No. 24a of the German Energy Industry Act (Energiewirtschaftsgesetz, "EnWG") defines the self-consumption facility. To qualify as a self-consumption facility, the facility must supply electricity for consumption in an adjacent geographical area. For this purpose, the facility can either be connected to an energy supply network or to a generating installation. In addition, the self-consumption facility must be made available to all to allow connected end consumers (Letztverbraucher) to be supplied by means of transmission, irrespective of their choice of energy supplier, on a nondiscriminatory basis and free of charge. Furthermore, the extent of energy supply via the self-consumption facility must be insignificant with regard to guaranteeing effective and undistorted competition. The connected end consumer can either be the operator of the installation itself or a third party. Although energy is distributed in self-consumption facilities similarly to in distribution grids (Verteilernetze), self-consumption facilities are not classified as energy supply grids. Therefore, they are not subject to the specific grid regulation. That means the operator of the self-consumption facility is, e.g., exempt from statutory unbundling requirements and grid fee regulation. Therefore, purchasing electricity supplied via a self-consumption facility is usually significantly cheaper than via the distribution grids, as there are no grid fees or other ancillary electricity costs. Due to these advantages, where possible, decentralized supply concepts with self-consumption facilities are often used by plant operators and end consumers, e.g., by tenants in residential areas or companies in industrial and business parks.

However, the EU legal framework for the energy market — particularly Directive (EU) 2019/944 ("Electricity Directive") — does not provide for the concept of self-consumption facilities. Instead, it classifies every grid used to transport energy as a distribution grid unless explicitly stated otherwise. Nevertheless, the German regulations on self-consumption facilities, which have been in place since 2011, have so far been largely assumed to be compatible with EU law.

The question referred to by the BGH

In 2020, an appeals case reached the BGH in which the operator of a local grid supplied several large blocks of residential apartments with an annual amount of energy of up to 1,000 megawatt-hours, using electricity generated in two combined heat and power plants. The operator also sold the transmitted electricity to the tenants. The costs for the system were passed through to the tenants as ancillary rental costs. Due to these circumstances, it was already a borderline case, regardless of EU law: Is this still a self-consumption facility or is it already a distribution grid? The BGH assumed that the statutory requirements for a self-consumption facility were still met. However, it referred the case to the ECJ in December 2022 to clarify whether this interpretation was still compatible with the requirements of EU law or whether EU law required the local grid to be qualified as a distribution grid.

The ECJ's decision

In its decision of 28 November 2024, the ECJ not only determined that the proposed interpretation of the German concept of self-consumption facilities in the specific borderline case was not compatible with EU law, but also rejected the German exemption for self-consumption facilities as a whole. The ECJ stated that the definition of the term "distribution system" in the Electricity Directive is exhaustive. Member states may not exclude particular types of networks from the concept of "distribution system" based on additional criteria not contained in the Electricity Directive. Therefore, unless covered by one of the exceptions expressly provided for in the Electricity Directive, facilities used to transport electricity at high, medium or low voltage for the purpose of selling it to customers must be qualified as (regulated) distribution systems.

Analysis and impact

The full impact of the ruling cannot yet be fully predicted and will likely depend on the further course of action taken by the German legislator and the authorities. Nevertheless, it is already clear that it is likely to have far-reaching consequences for many companies, particularly in the form of increased costs. This is because the exclusion of self-consumption facilities from grid regulation, at least in its current form, will not be tenable in the future. The ECJ ruling leaves little leeway in its understanding that local grids, in principle, constitute regulated distribution grids.

As a rule, an exemption from grid regulation will therefore only be possible in the future in the cases specified in the Electricity Directive, i.e., particularly for citizen energy communities (Bürgerenergiegemeinschaften), closed distribution systems, small connected systems and small isolated systems. For small connected systems and small isolated systems, the exemption must be granted by the European Commission. Apart from these exceptions, it is unclear whether local grids could be excluded from qualification as distribution grids in other exceptional circumstances. Therefore, it seems possible that, in the future, even (complex) in-building distribution systems, (further branched) on-site PPA direct lines, or cases of operational self-supply (Section 3, No. 24b EnWG) could be subject to distribution grid regulation.

However, at least in cases of complete self-supply, exemption from grid regulation should still be possible. This is supported by the fact that the ECJ's definition of "distribution" under the Electricity Directive is limited to the transportation of electricity "for the purpose of supplying customers." However, whether this requirement would still be met when supplying affiliated companies is already questionable.

Therefore, companies that have so far benefited from an exemption from grid regulation should carefully analyze the possible effects of the ruling on their case and, if necessary, examine the extent to which alternative concepts, e.g., the exemptions specified by the Electricity Directive, could be considered. In particular, classification as a closed distribution system (Section 110 EnWG), which would exempt them from at least some grid regulation requirements, could be an option. At the same time, the authorities' and legislators' further reaction to the ruling should be closely monitored.

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Nico Ruepp, Law Clerk, has contributed to this legal update.

Click here to read German version.