Five takeways on Germany’s Implementation of the EU’s New Gas and Hydrogen Framework

As a leading industrial nation Germany faces a particularly complex task in transitioning from natural gas to hydrogen. The recently published draft amendment to the German Energy Industry Act (EnWG) seeks to implement the EU’s new gas and hydrogen directive and regulation. The legislator's strategy is to fully integrate hydrogen into the existing EnWG, even proposing to rename it the "Law on Electricity, Gas, and Hydrogen Supply". The amended EnWG will establish a legal framework for renewable and low-carbon gases and for hydrogen networks, marking a strategic shift with increased focus on hydrogen and decarbonized gases. In this blog, we outline five key takeaways from the legislative proposal.

1. Prohibition of fossil gas contracts without CCS/CCU

The draft law contains a prohibition of long-term fossil gas supply contracts without carbon capture and storage or usage (CCS/CCU) from the end of 2049. This reflects a strategic decision prioritizing hydrogen and biogas. While this measure will not directly phase out natural gas itself, it requires that contracts for fossil gas incorporate carbon mitigation measures. Therefore, the future of the market for natural gas in the EU, and Germany specifically, will depend on the economic and technical viability of CCS and CCU. 

2. Integrated and multi-Level network planning regime

The draft law revises the network planning regime. The regime for an integrated planning for gas and hydrogen networks is further developed. The integrated "NDP Gas and Hydrogen" shall serve as the primary instrument for the development of the national hydrogen network and the parallel transformation of the gas network. A major innovation is the introduction of mandatory Distribution Grid Development Plans (Verteilernetzentwicklungspläne – VNEP). For the first time, gas and hydrogen distribution system operators will be required to create plans detailing the future use, conversion, or decommissioning of local networks. This multi-level, integrated planning structure aims to provide a cohesive roadmap for transition from the transmission level down to the local distribution grid.

3. A new reality for grid connection and access

System operators will be permitted to refuse network connections for new customers to the gas grid. In certain circumstances, even existing connections may be terminated. Historically, operators were required to connect any customer to the gas grid upon request. This represents a crucial change, empowering network operators to actively dismantle the natural gas infrastructure, which is a necessary step in the transition to hydrogen systems. To balance this, the draft law introduces robust consumer protection mechanisms, including long notice periods providing households and businesses with a substantial timeframe to adapt.

Notably, biogas production plants will receive priority for grid connections, which may conflict with the need to repurpose gas pipelines for hydrogen. System operators will thus need to carefully balance biogas and hydrogen development. 

4. Managing Legacy Assets 

The draft law stipulates that owners must tolerate, free of charge, natural gas pipelines that have been permanently decommissioned. This is because immediate comprehensive dismantling is costly and engineering capacities are limited and needed elsewhere as a matter of priority, e.g. for the construction of new hydrogen pipelines. At the same time the law provides for dismantling, e.g. if earthworks are taking place at the site anyway. 

5. Unbundling

As required by the EU directive, Germany will extend its established vertical unbundling regime to the hydrogen sector. This includes applying the familiar models of Ownership Unbundling (OU), the Independent System Operator (ISO), and the Independent Transmission Operator (ITO) to hydrogen transmission networks. Ownership unbundling is the legal separation of ownership and control of energy networks from companies involved in energy generation or supply. An Independent System Operator (ISO) is an entity that operates and controls an energy transmission system independently from its owners. The ISO model has not been popular because the ISO has all the rights, while network owners have all the obligations. A compromise is the Independent Transmission Operator (ITO), a transmission system owner that remains affiliated with energy generation or supply but is required to operate independently under strict regulatory oversight and governance rules to prevent conflicts of interest. This has been the most used unbundling model in Germany so far. However, although all three options will be implemented, further clarifications are needed to prevent unnecessary restrictions and to provide a clear legal framework, which is essential for attracting the private investments desperately required. 

The draft law also implements the new requirement for horizontal unbundling, which stipulates the legal separation of gas and hydrogen network operators. Horizontal unbundling to some extent contradicts the strategic goal of repurposing existing gas infrastructure as the expertise, personnel and structures for this are in fact available within the gas system operators. To mitigate this, the draft law makes use of the EU’s exemption rule that allows integrated operation of natural gas and hydrogen networks in one company on the condition of a cost-benefit-analysis. This should be feasible for most transmission system operators.

Outlook

While the draft law provides a practical roadmap, it presents significant challenges. The new planning regime will impose a substantial administrative and financial burden on both network operators and regulators, with the draft itself highlighting a considerable increase in resource requirements for the Federal Network Agency (BNetzA) and state authorities.

The authority to disconnect customers fundamentally changes previous obligations and will need careful management to address uncertainty for households and businesses. A proactive public communication and support strategy will be essential to ensure a smooth transition.

Finally, while the legislative proposal provides a needed framework for hydrogen, it also implies disinvestment from the gas sector, creating the risk of stranded assets while requiring major investments in hydrogen and alternative infrastructure. This is likely to pose a significant challenge for both market participants and regulators.

If you are exploring new opportunities or facing regulatory challenges in the evolving hydrogen and gas sector, our team is ready to provide tailored legal and strategic advice.