CLARIFICATION – Czech energy regulator outlines key concerns about German gas storage levy

(The seventh paragraph has been amended to clarify that the price distortion caused by the levy contributed to a spike in flows via the Slovak Lanzhot interconnector. )

LONDON (ICIS)–The Czech Energy Regulatory Office (ERO) has told ICIS it has serious concerns about the German storage neutrality levy.

Chief among the points of concern it outlined were the levy’s compatibility with EU rules and the security of Czech gas supply, with the levy increase potentially opening a backdoor for increased Russian flows to the Czech Republic.

“We understand that several member states, including the Czech Republic, have contacted the European Commission to investigate the legality of the levy,” Martin Sik, director of the regulator’s analytical and data support department, told ICIS when asked about the office’s view on the levy increase.

German market manager THE set its storage neutrality charge at €1.86MW for the period from 1 January-30 June 2024 to enable filling of gas storage facilities in Germany. This is a 28% increase from the previous tariff introduced on 1 July 2023.

The Czech regulator said it does not have an official position on the levy, however it is closely monitoring its impact.

The regulator is concerned that unlike transmission tariffs, the levy is volumetric, so it has a greater impact on short-term shipping decisions, which may distort market signals across central Europe.

Furthermore, Sik said the price distortion caused by the levy contributed to a spike in flows via the Slovak Lanzhot interconnector. ERO believes a portion of the volumes to be of Russian origin, a matter which has sparked political controversy in the Czech Republic.

“The proposed New Year’s increase in the levy is likely to worsen the situation. The July increase already had a significant impact on gas flows across Czech borders”, he added.

The regulator said it was concerned about the potential impact of the levy on gas storage filling during the upcoming injection season.

“This year’s injections have been backed by exceptionally high summer-winter spreads. Next year’s spreads, on the other hand, are currently much lower, and more importantly, the Czech summer-winter spread is lower than the German one, putting Czech storage at a disadvantage,” said Sik.

The ERO also complained about the lack of a clear exit strategy. Even at the increased rate, it said the cumulative loss of the storage neutrality account will take years to offset, further undermining the internal gas market.

The regulator said it was currently working closely with the EU Agency for the Cooperation of Energy Regulators, which is conducting its own investigation into the levy, according to ERO.