Federal Cabinet approves key points for the district heating package

The German Federal Government has adopted the key points for the district heating package developed by the Ministry of Economic Affairs. This sets the course for the new district heating law.

The German government aims to decarbonize district heating networks and has therefore launched a district heating package. The Federal Cabinet has now adopted a policy paper outlining key points for this package, presented by the Federal Ministry for Economic Affairs and Energy (BMWi). These key points represent the first step towards revising the market and legal framework for district heating.

"The decarbonization of heating networks is crucial for a successful energy transition. With this cabinet decision, we are creating an important foundation, ensuring greater planning certainty for businesses and price transparency for consumers. A modern and coherent legal framework means reliable conditions for investments, thus establishing a fair balance of interests between consumers and energy suppliers," says Minister of Economic Affairs Katherina Reiche (CDU).

The agreed key points:

price change clauses
Taking into account the jurisprudence of the Federal Court of Justice, we will specify the requirements for price adjustment clauses with the aim of strengthening transparency, comprehensibility, and predictability for customers. We will maintain the existing requirement that price adjustment clauses contain both a cost and a market element. The use of gas exchange indices in the market element will be excluded. In addition, we will create the option of basing a price adjustment clause not on a cost index, but on the actual cost structure. The price adjustment clause must be designed in such a way that it also takes into account cost reductions that benefit the customer.

Adjustment of initial prices and price change clauses (legal regulation of unilateral price adjustment)
We will legally regulate the right to unilaterally adjust prices and structure the law in such a way that a unilateral adjustment of the base price and the price adjustment clause (exchange of the indices used and changes to their weighting, as well as any existing fixed components) is legally permissible if the heat supply company invests in decarbonization measures or in expanding the network that demonstrably serves decarbonization. Furthermore, the heat supply company is obligated to adjust the price adjustment clause if the generation mix changes. A unilateral price increase must be announced with reasonable notice. In the event of a unilateral increase in the base price, the customer has a special right of termination. A price increase may only take effect after the new plant has been commissioned. When allocating investment costs, appropriate depreciation periods corresponding to the plant's useful life must be taken into account.

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Right to adjust performance
When implementing efficiency measures, using renewable energies, or in the event of oversizing the capacity, the customer can request a capacity adjustment after receiving energy consulting. In the case of oversizing, the right to a capacity adjustment can only be exercised within the first three years of the contract term. After a reduction in capacity, a higher capacity can only be agreed upon with the heat supply company. To ensure a balance of interests, we will introduce a special regulation for small networks and specific consumption situations for large consumers, and stipulate that the heat supply company may refuse the adjustment if the reduced capacity would fall below a certain threshold.

Special right of termination
The customer may terminate the supply contract with reasonable notice if they intend to completely replace the service with renewable energy and the district heating network does not meet the requirements of the Heat Planning Act for district heating networks. They must provide evidence that only renewable energy is used. If, in this case, the extraordinary termination of the supply contract occurs within the first ten years after the initial contract conclusion, the district heating company may demand reasonable compensation from the customer for customer-specific investments in relation to the contract term that have neither been depreciated nor covered by previous payments, taking into account any construction cost subsidies and connection fees already paid.

Arbitration Board
We will establish an industry-specific consumer arbitration body within the remit of the Federal Ministry for Economic Affairs and Energy (BMWi), which, upon entry into force of the new legal framework, will be responsible for resolving disputes concerning connection to the district heating network, the supply and metering of heat, and the adjustment of output. To this end, the BMWi will enter into a structured dialogue with stakeholders.

Strengthening price control
We will strengthen price oversight by introducing ex-post price supervision at the federal level through a federal agency. In addition to requirements for internal accounting and bookkeeping, we will introduce a requirement for heat supply companies to disclose price and key cost components to the agency in a standardized format at regular intervals (for example, as part of the annual statement), when unilaterally adjusting base prices and price adjustment clauses are made, and upon request. This will enable the agency to review the development of the cost and revenue structure on a case-by-case basis for its appropriateness, for example, in comparison to structurally similar supply companies. Furthermore, we will create the possibility for heat supply companies to have planned investments, network expansion projects, and unilateral adjustments to base prices and price adjustment clauses reviewed and approved in advance to ensure investment security. We will effectively integrate ex-post price supervision with the existing mechanisms of the Act against Restraints of Competition and the available civil court review options.

Cost neutrality requirement
We will modify the existing cost neutrality requirement so that, in the case of a significant investment by the landlord or a third party in altering the heating system, a monthly additional charge to the tenant of a maximum of 50 cents per square meter of living space is permissible. If such an investment is lacking (as in the case of a building management contract), the existing cost neutrality requirement remains in effect. The explanatory memorandum to the law specifies that connection to a district heating network and the installation of a new heating system by a third party typically involve substantial investments. We will extend the scope of application of Section 556c of the German Civil Code (BGB) and the Heating Cost Ordinance (WärmeLV) to tenants who supply their own heating (particularly in the case of individual gas-fired boilers). If the cost neutrality threshold is exceeded, the operating costs for heating and hot water can be passed on to the tenant up to the (modified) cost neutrality threshold. The reform will be evaluated in 2030 to determine whether the expansion and densification of heat supply in existing rented buildings continues to be significantly hampered and how this affects the cost burden on tenants. If the modified cost neutrality applies to a tenancy, special provisions will apply: For the conversion to commercial heat supply, a rent increase for modernization measures under Sections 559 and 559e of the German Civil Code (BGB) is excluded. During the legislative process, we will examine whether the caps from Section 559 Paragraph 3a of the BGB and the local comparative rent can be reduced by up to 50 cents/m² when applying Section 558 of the BGB, in order to ensure comparability with the tenant's cost burden in cases where the landlord installs and operates a new heating system.

Transitional arrangement
We will create a regulation that will allow existing contracts to fall under the new legal framework in principle. We will create an exception for cases where the exercise of a right is subject to a specific deadline, such as the right to adjust performance.

Source: BMWE

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