CJEU rules on legal concept of ‘self-consumption facilities’ in German Energy Industry Act

The Court of Justice of the European Union (CJEU) handed down a preliminary ruling decision on 28 November 2024 (C-293/23) considering the legal concept of a ‘self-consumption facility’ within the meaning of section 3, no. 24a (or 24b) of the German Energy Industry Act (Energiewirtschaftsgesetz – EnWG). The CJEU clarifies that the nationally coined definition of ‘self-consumption facility’ may not allow any derogation from the scope of application of the legal concept of ‘distribution system’ under the EU Electricity Markets Directive (Directive EU 2019/944). Hence the exemption of facilities qualified as a ‘self-consumption facility’ under German law from the obligations of distribution system operators provided for in that Directive violates EU law. With this judgment the CJEU makes a fundamental statement on the regulatory framework governing electricity networks in Germany compared to the EU legal framework, which may now make a further legislative change to the German Energy Industry Act necessary. It may also place companies under regulatory pressure to adapt.

The Facts

The CJEU ruling was handed down as part of a request for a preliminary ruling submitted by Germany’s Federal Court of Justice (Bundesgerichtshof – BGH). The case originated from national proceedings about the connection of a specific energy supply facility to the local distribution system, which must be allowed for any self-consumption facility under German law. The facility in question involved two combined heat and power plants with a nominal capacity of 20 kW and 40 kW, which the energy company had built to independently supply electricity to several local residential blocks of over 200 homes (annual throughput of up to 1,000 MWh) and to supply a local heating network. The energy company wanted to connect these facilities to the general distribution system, which the public distribution system operator refused to do, stating that the facilities were not self-consumption facilities subjected to the right to connection within the meaning of section 3, no. 24a or section 20(1d) of the Energy Industry Act . The Federal Court of Justice, which heard the appeal on a point of law, decided to refer the question to the CJEU of whether the German legal term of ‘self-consumption facility’ in section 3, no. 24a of the Energy Industry Act read together with section 16 of the Energy Industry Act (and the related distinction from a distribution system) is compatible with the requirements of the Electricity Markets Directive.

Self-consumption facilities in the national distribution network regulation

The legal concept of a self-consumption facility within the meaning of section 3, no. 24a (or 24b) of the Energy Industry Act is a term created under German law which has no direct equivalent in EU law. In the 2011 amendment to the Energy Industry Act the legislators reclassified the existing distribution network categories and introduced the self-consumption facility as a standalone legal term, mainly to distinguish it from other (regulated) energy infrastructure facilities. The Energy Industry Act provides for two types of self-consumption facilities: firstly, a general self-consumption facility for energy supply in accordance with section 3, no. 24a of the Act and secondly, a self-consumption facility to supply a business’s own needs in accordance with section 3, no. 24b of the Act. In practice this distinction has no significant impact.

The conceptual criteria for a self-consumption facility according to section 3, no. 24a of the Energy Industry Act are that the facility serves to supply energy to a certain local area that it is connected to a power grid or to a power plant, that it does not distort competition in the energy market and that the energy transmitted for the purpose of supplying the connected end users is provided without discrimination and free of charge. The latter does not, however, mean the end consumer must be offered a connection to the energy system for free. According to the explanatory memorandum, the free-of-charge requirement is also fulfilled if no direct consumption-based energy price is charged, but the use of the self-consumption facility is included in an overall flat-rate price (e.g. as part of a rental or lease agreement).

The conceptual requirements for a self-consumption facility to supply a business’s own needs are based on this. This type of self-consumption facility according to section 3, no. 24b of the Energy Industry Act is deemed to exist when the majority of the transmitted power is consumed by the operator of the self-consumption facility or one of its affiliates. Unlike under section 3, no. 24a of the Energy Industry Act, however, it is not necessary for them to be competitively neutral in the above sense.

According to the explanatory memorandum, both definitions of self-consumption facilities serve the purpose to legally clarify where the regulated network begins and ends. Consequently, section 3 of the Energy Industry Act deems both types of self-consumption facility an exception to the regulated parts of the electricity network, by indicating that self-consumption facilities are not part of the energy supply distribution network as defined in section 3, no. 16 of the Act. Consequently, the operators are not classified as operators of an energy supply network under section 3, no. 4 or as energy supply companies under section 3, no. 18 of the Act. This exemption leads to various forms of deregulation:

Self-consumption facilities are not subject to the unbundling requirements of the Energy Industry Act and no grid fees are charged for their use. This makes things much easier for operators. Since the energy within the system can be distributed to the connected end users (and indirectly in return for payment) without connection levies or grid fees, the legal concept of a self-consumption facility enables an economically attractive way to a decentralised self-supply outside of the regulatory framework for distribution networks. It is also possible that the self-consumption facility generates some of the energy it needs itself and draws the rest from the grid. In this case, there is an entitlement to non-discriminatory network access in section 20 of the Energy Industry Act, which is specified more precisely in relation to self-consumption facilities in section 20(1d) of the Energy Industry Act.

The classification of a plant as a self-consumption facility also had a favourable effect for operators in the context of the electricity price cap under the German Electricity Price Cap Act (Strompreisbremsegesetz – StromPBG), which expired in December 2023. Key parts of the Act refer to the electricity supply companies within the meaning of section 2, no. 6 of the Electricity Price Cap Act. The electricity price cap was aimed at companies that supply electricity to end consumers via a distribution network within the meaning of this definition. Companies that do not supply electricity via a distribution network, but rather within a self-consumption facility within the meaning of section 3, no. 24a of the Energy Industry Act do not fulfil these requirements and were therefore treated the same as end consumers for the purposes of the electricity price cap (see the Federal Ministry of Economic Affairs FAQ). They may have received relief themselves in accordance with Part 2 of the Electricity Price Cap Act.

Any regulatory liberalization for self-consumption facilities is likely to become much less important following the recent CJEU ruling. It is unclear whether the ruling will also have a (retroactive) effect on the relief provided under the Electricity Price Cap Act, as the Act did not directly specify the requirements of the Electricity Markets Directive in national law, but instead constituted an additional structural support measure. If the CJEU ruling is taken to its logical conclusion, the operators of self-consumption facilities might not have been entitled to the relief as end users, but instead the suppliers of those facilities might have been entitled.

CJEU: EU Electricity Markets Directive prevails Electricity Industry Act

The characteristics of a self-consumption facility within the meaning of the German Energy Industry Act are not reflected at European level. The Electricity Markets Directive is primarily concerned with the concept of ‘distribution’ in Article 2(28), which is defined as ‘the transport of electricity on high-voltage, medium-voltage and low-voltage distribution systems with a view to its delivery to customers, but does not include supply’. From the perspective of EU law, the concept of a distribution system can therefore only be determined by reference to the two criteria set out in Article 2(28) of the Directive, namely the voltage level and the customers supplied. The criteria set out in the Energy Industry Act for classifying a system as a self-consumption facility do not reflect this concept (as explained).

In light of this, the CJEU ruling essentially recalled the general principle of the primacy of EU law over national law and applied this principle to the definitions of the Energy Industry Act. In doing so, the CJEU expressly clarified that due to the primacy of EU law the obligations for network operators laid down in the Electricity Markets Directive may not be undermined by differing national definitions of networks. In the opinion of the CJEU, this follows from the purpose of the Directive, which plays an essential role in integrating national energy markets. According to the CJEU, allowing Member States to define the term differently could lead to a significant number of facilities being excluded from the scope of the Directive, thus undermining its market-harmonising effect. This would not only contradict the idea of market integration, but would also be unacceptable for reasons of competition and consumer protection.

Thus, criteria in national law which make the application of regulatory obligations of distribution system operators dependent on further conceptual requirements are in violation of EU law.

Outlook and practical implications

The regulatory impact of the ruling cannot be predicted in concrete terms. However, the potential effects for the affected players are considerable. It may follow from this decision that the operators of self-consumption facilities will have to comply with all the rules for distribution system operators in future, from licensing requirements to reporting and publication obligations. Supplying power free of grid charges and levies would then be impossible.

In any case, the CJEU has unequivocally stated that it is not permissible to exclude self-consumption facilities within the meaning of the Energy Industry Act from the EU legal concept of a distribution system. Now the German legislature must react to this decision and in any case adapt the definitions in section 3 of the Energy Industry Act accordingly. Whether the legal concept of a self-consumption facility will be completely eliminated or can be maintained to a very limited extent is not necessarily set in stone. This is because the CJEU did not hold the legal concept of a self-consumption facility to be unlawful per se, but only the resulting restriction of the scope of the obligations of distribution system operators under the Electricity Markets Directive.

However, the CJEU’s ruling highlights the limits of derogation by national legislatures with regard to exemptions from the requirements of EU Energy law. The judgment ultimately calls into question as a whole the practice of decentralised energy supply outside of the regulated distribution networks. Operators of such facilities must now prepare to being governed by the full regulatory requirements of distribution system operators in future and should examine their business model accordingly, especially by drawing on comprehensive legal expertise.