Draft de­ter­mi­na­tion for ad­just­ing de­pre­ci­a­tion ar­range­ments in the gas sec­tor

Year of issue 2024
Date of issue 2024.07.17

The Bundesnetzagentur has today published its draft determination for the adjustment of imputed useful lives and depreciation arrangements for natural gas pipeline infrastructure (KANU 2.0).

Adjustment of depreciation arrangements

The determination provides regulatory support of the gas network transformation. KANU 2.0 makes the depreciation arrangements for gas network operators nationwide substantially more flexible since costs are not expected to fall in parallel with the decreasing user numbers. Without the proposed adjustment the remaining users would then have to bear increasingly higher charges over time.

Adding flexibility to the depreciation arrangements means that network operators can now distribute costs over the course of the next several years until 2045 so that the costs can be borne by as many customers as possible. This prevents customers who are unable to stop using natural gas at a faster pace than others from having too great a burden at the end of the transformation process. At the same time the draft determination ensures that network operators will continue to be able to recoup their necessary investments in the natural gas networks. The arrangements take into consideration the heterogeneity of the networks.

Shorter useful lives and declining balance methods of depreciation

The draft determination allows network operators much shorter useful lives than has been the case so far. As an exception parts of gas networks can be depreciated until 2035 (normally until 2045).

In addition, declining balance methods of depreciation are allowed at a rate of up to 12%. The aim is to adjust depreciation to the future decrease in volumes of sale. As a result, network operators can by and large recoup their investments and secure their economic performance for the transformation process.

The new depreciation arrangements can be included in network tariffs beginning in 2025. However, network operators are not required to apply the rules at a specific time. For example, they can opt to wait for the adoption of local heat planning before changing the depreciation arrangements. 

Faster depreciation is generally associated with an initial rise in tariffs, although the specific effects on the tariffs are strongly dependent on the regional implementation of the heating transition. However, the Bundesnetzagentur anticipates a moderate rise in tariffs. 

Background

The significance of natural gas will diminish in many sectors in the medium term. Although there is not yet a large decline in gas connections, it is already foreseeable that there will be major regional differences in the demand for and use of the gas networks.

A large part of the natural gas network will not be used beyond 2045. Some federal states and municipalities are planning to phase out their gas supply before that. Parts of the transmission system and, in individual cases, the distribution system will be used to transport hydrogen. The remaining part of the network will be decommissioned. 

The Bundesnetzagentur's forecast calculations show that it is essential to adjust the depreciation possibilities for existing assets. Otherwise, there would be several billion euros worth of unamortised residual value as at 31 December 2044. There would also likely be a significant rise in network tariffs at the expense of the remaining network customers.

Next steps

The Bundesnetzagentur is launching a consultation on the draft determination. Comments may be submitted until 7 August 2024. Thus the determination proceedings should be concluded in time for the rules to come into force in 2025. 

The draft determination has been published (in German) at www.bundesnetzagentur.de/kanu.