Policy impulse

Energy Infrastructure in transformation needs investment-friendly regulation

How the NEST process affects the energy transition

The gas industry remains a central pillar of energy supply. Natural gas continues to account for more than a quarter of Germany’s primary energy consumption and ensures a reliable supply for half of all German households, electricity generation, and industry. The natural gas supply system is designed to reliably supply all customers with natural gas even in the coldest temperatures. Since 2022, we have very quickly shifted Germany’s natural gas supply from Russian natural gas to imports of liquefied natural gas from the U.S. However, this also means that our transmission system is being utilized in a completely different way. Regional underground storage facilities play a crucial role in efficiently providing large quantities of natural gas for heating needs during the winter. Last winter, we saw that these natural gas storage facilities quickly dropped to a low fill level, which stood at 21% by the end of the winter. The cold snap across Europe in January thus clearly demonstrated the importance of storage to us. To address this, we have developed a proposal with our association, FNB Gas, on how to solve this annual storage problem: the so-called “combined model”.

Reliable supply requires investment

The transmission network faces a major challenge: Since gas supplies from Russia have ceased, we’ve had to switch the natural gas transport system across Europe from east-west to west-east. The main supply of natural gas now comes exclusively from the North Sea coast—via pipeline gas from Norway and the LNG terminals in Germany, the Netherlands, and Belgium. From here, Eastern and Southeastern Europe are also increasingly being supplied. Due to this orientation, we alone transport around two-thirds of Germany’s natural gas consumption through our OGE network. This sometimes pushes our transmission network to its technical capacity limits—that is gas transport in the red zone. It is clear: without our resilient transmission network, security of supply in Germany would be unthinkable. Therefore, significant investments in energy infrastructure are required to ensure that a top-tier, resilient transport system remains available in the future—one capable of reliably transporting gas even in exceptional situations under the new demand structure. To achieve this, substantial (re)investments in infrastructure are necessary to secure capacity for new LNG terminals, onward transport to the south, and the connection of new power plants.

At the same time, the gas infrastructure is undergoing a profound transformation to meet Germany’s climate targets and industry demand for decarbonization options. As Germany’s largest transmission system operator, OGE ensures a secure natural gas supply at all times, is building the core hydrogen network, and is laying the groundwork for a future CO₂ transport infrastructure. These parallel tasks simultaneously require significant investments in the infrastructure for the transport of natural gas, hydrogen, and CO₂, which network operators must make.

For these investments to be realized, a stable and investment-friendly regulatory framework is needed. The reform of network regulation within the framework of the NEST process will therefore set a decisive course for investments in energy infrastructure.

NEST Reform: Crucial for Investments

Over the past two years, the Federal Network Agency (BNetzA) has prepared a comprehensive reform of network regulation through the NEST process (“Networks. Efficient. Secure. Transformed.”). The first key framework conditions were established at the end of 2025. These decisions alone suggest that the regulatory and economic framework conditions for grid operators will deteriorate significantly.

The BNetzA’s cost regulation imposes so-called efficiency benchmarks on grid operators, intended to reduce costs. However, this could result in the economic framework conditions no longer being sufficient for investors to undertake further investment activities. The next step will involve key BNetzA determinations regarding the economic framework conditions for grid operators—such as the weighted average cost of capital (WACC), the key metric for financing grid investments, or the efficiency benchmark.

These parameters will significantly determine the economic conditions under which grid operators can invest in the future and whether the sector remains attractive to investors. Capital market players are monitoring this development very closely: if regulatory conditions deteriorate, investments will be postponed. An unattractive risk-return ratio will lead to capital being withdrawn to other markets. This is because investors pay close attention to how high the risk of an investment is in relation to the potential return. Therefore, policymakers must create more attractive investment conditions in the future.

Balancing Efficiency and Investment

Especially in the current phase of gas network transformation, substantial investments are required, a large portion of which must be financed through private capital. Transmission system operators rely on attracting investors for new infrastructure—particularly for the hydrogen network. This makes it all the more detrimental when regulatory developments weaken investment incentives precisely at a time when a significant amount of capital must be mobilized for the transformation.

Transformation Requires Planning Certainty

The energy infrastructure of the future is being built now: hydrogen networks, CO₂ transport, and the secure supply of natural gas during the transformation must be organized in parallel.

The upcoming decisions in the NEST process will therefore play a decisive role in determining whether the regulatory framework actively enables the transformation of the energy infrastructure—or whether necessary investments are slowed down during a phase of particularly high infrastructure demand.

If investments in infrastructure are delayed or hindered, this affects more than just network operators. It has direct implications for the pace of the energy transition, security of supply, and the competitiveness of Germany as an industrial location.

As gas network operators, the NEST process deprives us of a certain degree of financial flexibility that we need to simultaneously drive the energy transition forward and ensure security of supply.

In light of these goals, one must ask whether a regulatory system focused purely on efficiency is still appropriate in this age of transformation. Given the enormous challenges and investment sums required for the energy transition, we have serious doubts.

We need a political and societal commitment to natural gas supply security and to the energy transition with a hydrogen core network and a CO₂ transport network so that Germany remains a viable economic and industrial hub. This must also be reflected in the Federal Network Agency’s upcoming regulations.