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Freshfields Transactions

| 3 minutes read

Unbundling – what you need to know

Unbundling rules in the EU may substantially shape an M&A deal in the energy sector.

At a glance: Unbundling rules in Europe

In the electricity and gas sectors, five main activities are subject to different organisational rules and obligations: production, transmission, distribution, supply and storage. The operation of energy transmission and distribution systems are regulated, while the activities of energy generation, storage and supply are carried out in competitive markets. The gas and electricity sectors have been heavily regulated in Europe through the adoption of directives no. 2009/72 and 2009/73 concerning common rules for the internal market in electricity and in natural gas. As provided under those directives, the unbundling principle implies a separation of transmission activities from the production and supply activities in order to prevent conflicts of interest, discriminatory practices and cross-subsidisation or distortion of competition between energy activities. In France, two transmission system operators (TSOs) operate the gas transportation network, Terega and GRTgaz, while one TSO, RTE, is in charge of the electricity transportation network. In Germany, there is a total number of 16 TSOs for the gas transportation network, i.a. Gasunie and FNB Gas, while the electricity transportation network is split up between the four TSOs Amprion, Transnet BW, TenneT, and 50Hertz.

Impact on the governance of the TSOs

The unbundling rules also impact the governance of the TSO (created after 3 September 2009). In this respect, Full Ownership Unbundling (FOU) demands that the same persons are, notably, not entitled to directly or indirectly exercise control over an undertaking performing production or supply, and directly or indirectly exercise control or exercise any right over a TSO. The unbundling rules must be thoroughly assessed when a purchaser is contemplating acquiring shares in a TSO. As alternative – and more lenient – unbundling models to FOU, a TSO may also be certified as an Independent System Operator (ISO) or Independent Transmission Operator (ITO). In case of an ITO, for example, the acquirer may still be active in the supply or generation business since the ITO’s corporate governance rules will still allow for independent decision making.

Impact on the acquisition process and the calendar

TSOs are subject to an approval and certification procedure by the administrative authority. In case of a change in the share capital of a TSO, a re-certification by the authority may become necessary. In such case, the authority will verify that there is no conflict of interest, i.e. that no investor acquires control in the TSO which also has control over an undertaking that produces or supplies energy. The regulatory authorities will screen all participations from a financial investor to determine whether there is such a conflict of interest. We have assisted several utilities and financial investors in such proceedings, and we are familiar with the specifics of the relevant authorities and have well-established contacts (i.e. to CRE in France, BNetzA in Germany, and Ofgem in the UK).

Key regulatory developments on hydrogen

The European parliament has very recently, on 11 April 2024, adopted a new text to modify the directive concerning common rules for the internal market in natural gas in order to include hydrogen. When the modified directive enters into force, on the twentieth day following that of its publication in the Official Journal of the European Union, the unbundling rules would also apply to the hydrogen sector, specifically to hydrogen transmission network operators. The text defines a “hydrogen network” as a network of onshore and offshore pipelines used for the transport of hydrogen of a high grade of purity with a view to its delivery to customers, excluding supply. A “hydrogen transmission network operator” is defined as the operator of a hydrogen network that contains mainly high-pressure pipelines, other than an upstream pipeline network and other than the part of high-pressure pipelines primarily used in the context of local distribution of hydrogen.

Our teams would be more than happy to support you on your energy transition and regulatory journey and discuss any aspects with you. Please feel free to contact your usual Freshfields contact or one of the key contacts on the right if you have any questions.


europe, energy and natural resources, regulatory, regulatory framework