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Heat plots under the new Collective Heat Act (CHA)
28 March 2024

Key take-away: Municipalities are granted a high degree of freedom under the CHA in determining heat plots. The size and demarcation of a heat plot will largely depend on the locally available heat sources and the regional heat transition policy as laid down in the municipal heat transition visions. The decisive factor in determining the size and demarcation of a heat plot is that a designated heat company can efficiently build and operate a collective heat facility and guarantee security of supply. Existing heat companies are well advised to anticipate, in advance of the CHA, the municipal developments that will determine the size and demarcation of (future) heat lots. In principle, an existing collective heat facility will be regarded as one heat plot under the transitional law, and existing heat companies will be appointed as operators of the relevant heat plot.

Currently, the legislative proposal for the Collective Heat Act (CHA) has been submitted to the Council of State for advice. The proposal will then be submitted to the House of Representatives for consideration.

The CHA is intended to (further) drive the Netherlands’ heat transition, with the aim of supplying over 7 million homes and 1 million other buildings (buildings that are mostly moderately insulated and heated using natural gas) with sustainable heat. It is expected that collective heat facilities (such as heat networks or large-scale TES) will be able to supply a large share of the built environment with renewable energy.

The main objective of the CHA is to facilitate the growth and sustainability of collective heat systems in the built environment. In the process of making the (local) built environment more sustainable, the CHA offers more governance to local governing bodies, compared to before. Local government bodies can establish so-called heat plots under the CHA. In this blog, we will discuss these heat plots in more detail.

What is a heat plot?
In the CHA a heat plot is defined as ‘a contiguous area within one or more municipalities for which (…) a heat company is or may be designated’. As part of the area- or district-oriented approach, the municipal executive of a municipality (municipal executive) is given the power under the CHA to establish heat plots. This allows the municipal executive to determine whether, where and when in its municipality will be chosen for a collective heat facility (such as a heat network). A heat plot can cover parts of a municipality, or cover the whole municipality, but it can also cross municipal borders. For each heat plot, the municipal executive then appoints a heat company, which is given the exclusive authority to transport and supply heat to connected consumers within the heat plot.

How are heat plots determined?
The determination of a heat plot is dependent on whether a sustainable, affordable, and reliable collective heat supply can be realised within the heat plot. The size of the heat plot must ensure that the designated heat company can efficiently establish and exploit a collective heat facility within the plot. In addition, the size of the heat plot is determined by security of supply. When determining the size and demarcation of the heat plot, the municipal executive must also consider relevant factors and developments taking place in nearby municipalities. This specifically includes:

  1. the availability and deployment of a heat source or a potential scarce heat source in a nearby municipality, insofar as they are present;
  2. the possible intentions in a nearby municipality to opt for collective heat supply, to the extent that these intentions are present.

The Regional Energy Strategies and the consequential heat transition visions can provide insight into the heat transition policies of nearby municipalities. These policy documents can thus be used to assess whether relevant factors and developments in nearby municipalities should be considered when determining heat plots in a particular municipality. These factors and developments may, for example, cause a plot to be established across municipal boundaries. In addition, such factors affect the size of the plot and the choice of, for example, which neighbourhoods are and are not included in a particular heat plot. Thus, heat plots can vary in size depending on local and regional conditions and preferences. The municipal executive has quite some freedom of choice in defining (the size and demarcation of) the heat plot. However, if the heat plot covers the territory of several municipalities, the municipal executive must submit the (draft) decision establishing the heat plot to the Provincial executive for review.

The (public) heat company
Once a heat plot is established, the municipal executive will then appoint a (interested) heat company for the duration of 20 to 30 years. In principle, under the CHA only heat companies with a public majority interest can be appointed. The idea behind this (not uncontroversial) requirement of a public majority stake is to strengthen public governance in the heat transition. To be appointed, an interested heat company must draw up a (global) plot plan, in which it (indicatively) describes the intended establishment of the collective heat facility and exploitation of the heat plot. This includes technical details and the plan to ensure security of supply. The costs of the construction, development and operation of the heat facility, as well as the tariffs envisioned for consumers must be globally assessed in advance. Changes to the plot plan during the period of appointment must be approved by the municipal executive. After the appointment, the designated heat company must translate this global plot plan into a detailed plan. The municipal executive must formally approve the detailed plot plan.

Introduction period and transitional law
Under the CHA, private heat companies (without the requirement of a public majority interest) can still be appointed by the municipal executive during the so-called introductory (‘grow-in’) period of seven years after the CHA comes into force. However, this is only possible if no other heat company with a public majority interest has been found for a heat plot, because such a heat company did not apply (in time), or its bid was rejected.

Existing heat networks and heat companies are covered by the scope of the CHA. Heat companies that are currently operating a heat network that is covered by the transitional law, can be appointed as heat companies under the CHA for a maximum of 30 years. The area over which the heat network extends will then be designated as a heat plot. The draft explanatory memorandum to the CHA endorsed that, for reasons stated therein, and otherwise understandable, it is not desirable for a collective heat facility to be ‘split’ into several heat plots. In principle, an existing collective heat system will therefore be classified as one heat plot.

The establishment of a heat plot in the chain of decision-making
Before a heat plot can be established, the municipal executive will have to lay down the local heat transition policy. Municipalities have currently drawn up a (non-mandatory) programmes for this purpose, also known as the heat transition vision. However, once the Municipal Instruments for Heat Transition Act enters into force (this act is currently proposed before the House of Representatives), it will become mandatory for every municipal executive to adopt a heat programme. This mandatory heat programme will incorporate the current heat transition vision and neighbourhood implementation plans. This heat programme will provide the starting points for determining the size and demarcation of a heat plot.

The formal decision to establish the heat plot is not subject to legal protection directly at the time of adoption itself. Parties who have objections against the size or scope of a heat plot can only challenge the decision of establishment when a heat company is designated. Therefore, for the purposes of legal protection, the decision to establish the heat plot and the decision to appoint a heat company are considered as one, challengeable decision.

Timely inventory is advised
While the heat plot is new (legal) figure, it is not a stand-alone phenomenon. The establishment of a heat plot must be seen in the broader set of policies and decisions of a municipality regarding the heat transition. It is therefore recommended that heat companies participate early on, at the municipal level in the decision-making chain regarding the possible size and demarcation of the heat plots. The starting point is that existing concessions and consents will continue under the CHA. Existing heat companies will in principle be appointed as operators of the relevant heat plot under the transitional law and an existing collective heat facility will therefore, in principle, be considered as one heat plot.

For more information, please contact one of the authors, Léone Klapwijk, Victor van Ahee or Sophie Silverstein.

Heat plots under the new Collective Heat Act (CHA)