27. June 2022 By Lars Zimmermann and Jonas Schnorrenberg
Emergency Plan for Gas – Robert Habeck declares alert level
On 30 March 2022, Robert Habeck, German Federal Minister for Economic Affairs and Climate Action, declared the early warning level of the Emergency Plan for Gas. This was followed on 23 June 2022 by the alert level, which is the second of three levels in the Emergency Plan for Gas. What does the alert level mean and what steps will be taken now? In our blog post, we will give you a brief overview as to why Habeck made this decision and what the impact will be.
We already discussed the early warning level in our blog post from 5 April 2022. The second escalation stage in the Emergency Plan for Gas has now been declared in response to the tense situation on the gas markets and Russian gas supplies being cut, with Habeck citing the threat to the supply situation as justification for the move. Gas supplies for the summer are not at risk, but the escalation is designed to prepare the country for the winter months. All consumers, both in industry and public institutions as well as private households, are being encouraged to reduce their gas consumption as much as possible.
Reasons for declaring the alert level
The key factor here is the reduction in Russia’s gas supply. On top of this, the Nord Stream 1 pipeline in the Baltic Sea will be undergoing maintenance for about ten days from 11 July 2022, which will lead to a further short-term reduction in gas supplies. In the past, gas storage facilities were used during these maintenance periods to compensate for lower gas imports. They are currently around 60 per cent full (as of 22 July 2022), which corresponds to the average of the last few years. Germany needs them to be at least 70 per cent full compared to the previous years to survive until winter. In addition, there is public uncertainty as to whether the gas supplied from Russia will reach the previous level after the maintenance work on Nord Stream 1 has been completed. Some highly vocal critics believe that cutting off supplies altogether after the maintenance has finished is a feasible option.
What steps will be taken now?
What does the declaration mean and what will the impact be? It is now vital that Germany fills its gas storage facilities. In particular, it needs to find alternative suppliers and further expand its use of renewable energies. More gas also needs to be saved. Measures to achieve this include reconnecting more coal-fired power plants to the grid to reduce gas consumption in the electricity sector. In light of the current situation, Germany also needs to resort to conventional energy sources so as to keep itself running.
The alert level doesn’t mean that the state will now intervene. The German Federal Network Agency (Bundesnetzagentur, BNetzA) will only step in and allocate who will continue to be supplied with gas in the event of a shortage if the emergency level – the last rung on the escalation ladder – is reached. Private households will receive special protection and will be supplied with gas for as long as is possible. Other protected areas, such as hospitals or security forces, are also exempt from this rationing. This means that industry would have to prepare for cuts.
Let’s turn our attention to prices for consumers. Back in May, the German Energy Security Act (Energiesicherheitsgesetz, EnSiG) was amended to allow energy suppliers to pass on prices directly to consumers in the event of the alert level being declared. This applies to both businesses and private households. However, energy suppliers will only be permitted to raise prices to an ‘appropriate level’ once the German Federal Network Agency has determined that there has been a ‘significant reduction in total gas import volumes to Germany’. Experts estimate that prices will treble or quadruple should this happen.
What needs to happen to trigger the emergency level and what is the potential impact?
To declare the third stage, the state must be expecting further massive, long-term shortfalls in gas supplies and have no alternative supply option. Furthermore, balancing energy (energy that acts as a reserve to compensate for fluctuations in the electricity grid) cannot always be traded freely on the market. The supply situation must also deteriorate to the point that the supply to critical infrastructure and vital services (such as hospitals, care facilities and the fire brigade) is under threat. Lastly, technical problems such as main pipelines failing without the possibility of finding an alternative supply quickly can lead to the third stage of the Emergency Plan being declared.
The state (in the form of the German Federal Network Agency) would inevitably have to intervene in this scenario, as the private sector would not be able to achieve the desired goal using its measures. It then decides who will continue to be supplied with gas and who will not. Therefore, in this scenario, how gas is distributed is solely determined by the German Federal Network Agency.
Following the continuing tensions with Russia due to the Ukraine war and the reduction in gas supplies already carried out by Russia, the German government was forced to declare the second stage of the Emergency Plan for Gas. The supply of gas to country is disrupted, which might lead to potential supply shortages in winter. Nevertheless, there is still a sufficient amount of gas on the commercial market despite massive price fluctuations, so the emergency stage will not be declared any time soon.
Companies and institutions that will be affected should start taking preparatory measures now to respond to possible cuts in the future. Prices will not jump up due to energy suppliers passing costs directly to consumers just yet, but high price increases are nevertheless to be expected due to the current supply situation.
It is now up to us to do our part – for example, by turning the TV off completely rather than just leaving it on standby and by turning down the thermostat. We can prevent us from reaching the emergency stage of the Emergency Plan for Gas by reducing our energy consumption.
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