New developments regarding power supply for data centres in Germany – allocating grid capacity, construction cost contributions and impending grid operator obligations
A power grid connection with sufficient capacity is key to operating a data centre. The related costs regularly represent a substantial portion of the total investment in a project. While available grid capacity is often scarce, operators also have to consider the regulatory framework governing power grid connections – even during the project development and planning phase.
There are currently several developments in this area that project developers and operators of data centres should keep an eye on. These concern allocating grid connection capacity, calculating construction cost contributions (Baukostenzuschüsse), and the possible cancellation of certain regulatory exemptions.1
Moving away from the 'first come, first served' principle – new procedures for allocating grid connection capacity
Requests for grid connection capacity from data centre operators are increasing, particularly in metropolitan areas. As our latest market study shows, interest in constructing new data centres continues to grow. But the available grid capacities are scarce. This is ia because of the increasing demand for electrical power for large heat pumps, battery storage systems, electrolysers and the progressing electrification of mobility. At the same time, the necessary grid expansion in Germany is only slowly making progress. For the city of Berlin alone, the pending grid connection requests submitted amount to a total required capacity of 2.8 GW, more than the entire grid capacity currently in place in Berlin. First grid operators and now also the Federal Network Agency (Bundesnetzagentur) are addressing this problem by developing and introducing new procedures for distributing grid connection capacity.
The obligation of grid operators to connect end consumers to the grid is regulated by the German Energy Industry Act (Energiewirtschaftsgesetz (EnWG)). According to Section 17 of the EnWG, a competent grid operator must connect end consumers (including data centre operators) requesting a connection to its grid at technical and economic conditions that are reasonable, non-discriminatory and transparent. The grid operator can however refuse a grid connection if it's impossible or unreasonable for operational or other economic or technical reasons.
Beyond these general requirements, the specific procedure for allocating available grid capacity isn't regulated in detail. The respective grid operator determines the procedure.
Previous practice of grid operators
Until now, grid operators usually allocated available grid capacities according to the "first come, first served" principle (ie in chronological order in which the grid connection requests were submitted). But in the last year, Stromnetz Berlin and NetzDienste RheinMain have introduced new procedures for allocating grid connection capacity for large-scale projects to meet the growing demand for capacity.
Stromnetz Berlin has published a new, annual repartition procedure (Repartierungsverfahren) for allocating grid capacities. It will be applied retroactively from 1 January 2024. The procedure is intended to ensure the equal distribution of the limited grid capacities at the medium and high-voltage level and applies to connection requests with a power requirement of 3.5 megavolt amperes (MVA) or above.
The grid capacities are allocated to the grid connection petitioners in equal shares (per capita). Stromnetz Berlin has published sample calculations. If, for example, a grid area has 120 MVA of available grid capacity and five petitioners submit requests for 5 MVA, 10 MVA, 100 MVA, 80 MVA and 65 MVA respectively (ie a total of 260 MVA), each petitioner is allocated 24 MVA (120 MVA: 5 petitioners) according to the repartition procedure. As two petitioners have submitted lower capacity requests (5 MVA and 10 MVA), the 24 MVA allocated to them will only be allocated in the requested amount of 5 and 10 MVA respectively and the exceeding capacities of up to 24 MVA will be distributed evenly among the remaining petitioners. This mechanism will be repeated until the available capacity has been distributed. Petitioners have to observe various deadlines to participate in the procedure.
NetzDienste RheinMain now also allocates on a temporary basis grid connection capacities of 10 MW or above by using the repartition procedure. But they apparently follow a "pro rata" approach in which the capacity is distributed proportionately (as a percentage) according to the amount of requested grid connection capacity.
Consultation procedure of the Federal Network Agency
Now that first grid operators have developed and introduced their own allocation procedures, the Federal Network Agency also feels compelled to consult with market participants on a proposal for a suitable allocation mechanism for grid connection capacity. Market participants are invited to submit a statement by 31 December 2024 on the proposed Procedure for the allocation of withdrawal capacity from grid levels above low voltage published on 7 November 2024. The Federal Network Agency aims to publish a position paper functioning as a market recommendation to the grid operators once the consultation procedure is finished.
In its proposed procedure, the Federal Network Agency presents other theoretically conceivable procedural mechanisms, eg an auction procedure, a tiered model and a "first ready, first served" model, but ultimately favours the repartition procedure based on a "per capita" approach. According to the Federal Network Agency, this approach has advantages compared to the "first-come, first served" principle. It prevents coincidences resulting from linking the allocation of grid capacity to the time at which grid connection requests are submitted, and significantly more petitioners can be considered. Besides, under the ‘first-come, first-served’ principle, a single petitioner could "block" not only the entire grid connection capacity currently available to a grid operator, but also the capacity that will be available in the foreseeable future.
The Federal Network Agency also aims to specify the preconditions for participating in the procedures. Petitioners have to demonstrate a certain project maturity. To participate, the petitioners must at least prove they hold the rights of use to the land required for the grid connection through the acquisition of rights in rem or long-term contractual claims. They also have to prove they've submitted the complete application for the building permits required for the project. The grid connection capacity should also be linked to the project or use case resulting from the building permit application. A subsequent project replacement should lead to exclusion from the procedure and a new capacity request would have to be submitted for the new project. It's stil unclear to what extent any subsequent adjustments to the project will not affect the capacity allocation.
Evaluating the regulatory approach
It's welcome news that the Federal Network Agency is addressing the problem of capacity shortage and intends to allocate grid connection capacities more fairly by means of new allocation procedures.
But, for market participants, it's likely to be more difficult, if not impossible, to obtain the total grid connection capacities required to realise large-scale projects, often with capacity needs of more than 100 MVA.
With the discussed participation requirements, the Federal Network Agency accepts, while taking into account the capacity shortage and to serve the probability of realisation, that both the acquisition of land or land use rights and the building permit application will involve investment and planning costs on the part of the petitioner, although obtaining the required grid capacities is still completely open at that stage. This is likely to be a significant hurdle for project developers and future operators of data centres. At the same time, the proposed conditions for participation in allocation procedures and, in particular, the planned linkage of grid connection capacity to the building permit application will make "powered land" sales considerably more difficult and require changes to the usual contractual mechanisms.
It remains to be seen whether it's politically opportune to pass on relevant risks to land sellers, project developers and data centre operators in view of the billions in investments announced by major market players in Germany. However, the Federal Network Agency's approach of counteracting speculation and the related tying up of scarce grid connection capacity seems reasonable.
Developers and future operators of data centres should monitor regulatory developments and familiarise themselves with the respective procedures for allocating the required grid connection capacity at an early project stage when selecting a location for their project. And they have to take into account any deadlines and foreseeable delays in project planning.
Federal Network Agency Position paper on construction cost contributions for grid connections above low voltage
In addition to the activities described above regarding the procedures of grid capacity allocation, the Federal Network Agency on 20 November 2024 published an updated Position paper regarding the charging of construction cost contributions (Baukostenzuschüsse (BKZ)) for grid connections in the area of grid levels above low voltage, which is intended to provide guidance for calculating BKZ from 2026 onwards. The position paper is intended to promote a conscious and economical use of grid connection capacities by making grid connection petitioners bear a larger share of the grid expansion costs.
Grid operators charge BKZ as one-off charges for expanding the upstream grid or increasing the capacity of a grid connection. They're regulated for the low voltage level in Section 11 of the Low Voltage Connection Ordinance (Niederspannungsanschlussverordnung). But it's also common and legally recognised to charge BKZ at voltage levels above low voltage. The specific method of calculating BKZ isn't regulated in detail by law, but most grid operators are guided by a position paper published by the Federal Network Agency in 2009, which described the capacity price model (Leistungspreismodell). In the view of the Federal Network Agency, that model satisfied legal transparency requirements and had an appropriate steering effect to prevent the emergence of oversized and inefficient grids.
Modified capacity price model with tiered BKZ
In principle, the Federal Network Agency has now upheld the capacity price model described in the previous position paper in the new position paper. However, instead of the previously published capacity price which was applicable at the date of signing the grid connection contract, the average capacity price over the last five years is to be used for the calculation. This is intended to mitigate the effects of strongly fluctuating capacity prices.
Also the principle that a grid operator must charge standardised BKZ for connections of the same type and quality in its grid area is included in the new position paper. What’s new and interesting is that the Federal Network Agency allows an exception to this principle at transmission grid level. A differentiation of the BKZ at transmission grid level could be appropriate with regard to the effects of the additional grid connection on the grid (eg for grid congestion management and redispatch). Five equal levels from 20% to 100% of the capacity price could provide a suitable differentiation. The categorisation should be based on how advantageous the realization of a grid connection at the respective location would be for the overall system. EUR 0 should be avoided due to the lack of a steering effect.
For grid connection petitioners, this may lead to less expensive BKZ for grid connections being advantageous for the overall system from the perspective of the transmission grid operators. In a published map, the Federal Network Agency has preliminarily outlined at which grid nodes of the transmission grid in Germany BKZ could be charged at what level in future. It's striking (but to be expected) that, according to the preliminary calculation, BKZ in the data centre conurbations of Berlin and Frankfurt in particular are estimated at 100% of the capacity price and a reduction in these areas isn't to be expected according to the new position paper. Lower BKZ could be levied primarily in northern Germany.
Location decision to be also based on BKZ
Although the updated position paper isn't legally binding, it serves, like its predecessor, as a guide for the market and reflects the legal position of the Federal Network Agency. Grid operators and grid connection petitioners can use it to assess the conditions under which differentiated BKZ are considered acceptable. In this respect, developers of data centres should observe the developments regarding the differentiation of BKZ at transmission grid level and the effects on the location of their projects. Depending on the choice of location, BKZ can massively increase the costs for grid connections of data centres, but in individual cases or with flexibility in the choice of location, there can also be a not inconsiderable potential in saving expenses in the future.
CJEU on regulatory exemptions for 'customer facilities' under the EnWG
In a recent judgement dated 28 November 2024 (Case C-293/23), the Court of Justice of the European Union (CJEU) dealt with the question of whether the regulatory exemptions provided for under the German energy regulatory framework for customer facilities (Kundenanlagen), ie certain installations for supplying energy in accordance with Section 3 No. 24a of the EnWG, are compatible with the provisions of Directive (EU) 2019/944 of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (Electricity Directive) on "distribution systems". The central question of the case was whether electricity infrastructure for the supply of around 200 residential units, which is operated by a company specialised in decentralised energy supply, is considered a "distribution system" within the meaning of the Electricity Directive. If so, the German regulations on customer installations under the EnWG – including the regulatory exemptions for their operators – would not be compatible with the Electricity Directive.
German regulatory exemption for 'customer facilities' not in line with the Electricity Directive
The CJEU ruled that the grid facilities operated in the case at hand would fall under the definition of a "distribution system" within the meaning of the Electricity Directive, which imposes certain regulatory obligations on distribution system operators. Referring to previous case law (in particular the CJEU ruling of 17 October 2019, Elektrorazpredelenie Yug, Case C31/18‑), the court emphasised that the Electricity Directive considers solely two criteria to classify a grid as a "distribution system". The grid must serve the transmission of electricity at high, medium or low voltage and this electricity must be intended for sale to wholesalers or end customers. National regulations may not define any additional criteria for considering energy infrastructure as a "distribution system".
The CJEU has now continued this case law with regard to the term "distribution system operator" within the meaning of the Electricity Directive and clarified: member state regulations that provide for exemptions from the obligations for "distribution system operators" under the Electricity Directive are only permissible in the cases expressly provided for in the directive, while the necessary conditions for this were not met in the present case.
Implications for operators of electricity infrastructure
The decision solely referred to the regulations on customer facilities in accordance with Section 24a of the EnWG and not to the customer facilities for internal operational supply (Kundenanlagen zur betrieblichen Eigenversorgung) pursuant Section 24b of the EnWG, which are probably more relevant for commercial and industrial companies. However, the court’s considerations are likely to be transferable to the latter and we assume the German legislator will review and adapt the regulations on customer facilities as a whole.
Especially operators of electricity infrastructure on a data centre campus that supply multiple data centres should examine the regulatory implications, monitor the reaction of the German legislator and weigh up their options for action. If their systems fulfil the criteria mentioned by the CJEU, they could be considered distribution systems and consequently their operation would be subject to various energy regulatory obligations. For example, the operators would be obliged to grant third-party grid connection and access, would be subject to grid fee regulation and authorisation requirements and would have to comply with publication obligations. Failure to comply with regulatory obligations may result in fines and the intervention of the competent regulatory authority.
To what extent a potential classification as a "closed distribution system" (geschlossenesVerteilernetz) within the meaning of the Electricity Directive or Section 110 of the EnWG represents an opportunity to reduce the catalogue of regulatory obligations must be examined for each individual case. But this would require an official determination by the competent authority following a corresponding procedure. It may also be worth analysing whether transferring obligations to a service provider could be reasonable and appropriate.
1 Please refer to our publications on the Energy Efficiency Act, which can be downloaded here, for information on the energy efficiency requirements that data center operators must also comply with.
