Analyzing the regulatory framework gaps for gas distribution networks with decreasing natural gas demand in Germany

Abstract

German energy system studies, investigating the energy transition pathways to the set climate targets, depict a significant decrease in gas demand. This leads to a discussion about the long-term need of gas distribution networks. The discussion intensified with the war in Ukraine and the subsequent energy price crisis. The German regulatory agency responded to these developments with adjusting the regulatory framework to the current challenges. Up to now, the depreciation period of network components varies between 45 and 65 years, and consequently the monetary capital is tied up for a long time, lowering the flexibility of network operators to react to current challenges. Therefore, the German regulatory agency allows the shortening of depreciation periods of new gas network assets. Nonetheless, it is still unclear how to deal with existing assets at risk of becoming stranded assets and how to regulate the decommissioning of gas networks. Therefore, this paper addresses the research question: “What effect do different regulations for decommissioning of gas distribution networks have on operators and users?“. To answer the question the model MERLIN is applied, which integrates the current and future regulation options into long-term investment decision analysis. The results show a need to shorten the depreciation period of existing assets to avoid stranded assets. Further, partial decommissioning with including the decommission costs in the regulatory framework and hence finance it through the network users, is the most economical attractive option for network operators and users.

Keywords

• Gas distribution network
• Network regulation
• Revenue cap
• Decommissioning
• Network charges