OUT-LAW ANALYSIS 21 min. read
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06 Aug 2026, 3:05 pm
Fresh proposals aimed at encouraging the development and operation of district heating networks in Ireland have been published by the Irish government.
The revised draft of the General Scheme of the Heat (Networks and Miscellaneous Provisions) Bill (Heat Bill), published on 24 July, follows on from an initial draft consulted on by the Department of Climate, Energy and the Environment in 2024 and provides additional clarity on matters such as permitted pricing methodologies, consumer protection, the applicable licensing regime and its implementation and the state's rights of acquisition.
The changes proposed are a positive signal for the Irish district heating sector and should improve the conditions for investment. However, the legislative and regulatory framework must move from the drafting phase to enactment at pace if the government is serious about unlocking investment, avoiding heat customers turning to alternative technologies, and putting heat networks at the centre of Ireland's decarbonisation ambitions.
Below, we look in detail at the provisions in the revised draft with a view to unpicking what they mean for network operators, funders and end-users of heat.
Under the initial draft, network operators would be required to charge in accordance with a "price regulation methodology" to be developed by the Commission for Regulation of Utilities (CRU).
The revised draft provides for a "principle-based approach to pricing for heat" as opposed to a prescribed formula.
Charges imposed would need to be:
The CRU would have the power to implement guidelines or recommend pricing regulation where it considers that such additional oversight is required.
This principles-based approach to pricing, which is broadly aligned with the approach taken in Britain, should be more attractive to developers and funders than a rigid tariff formula, particularly given the early-stage nature of the Irish market and the different cost profiles that networks may have depending on scale, heat source, density and customer mix. The express recognition of fair and reasonable, cost-reflective returns gives investors a stronger basis for arguing that regulation should support long-term recoverability of efficient costs and an appropriate return on capital.
The increased flexibility around pricing is balanced by a more robust consumer protection framework.
Heat networks require customers to make long-term connection decisions and, in many cases, to rely on a single network operator for heating and hot water. A credible consumer protection regime is therefore central to public confidence, offtaker acceptance and the wider investability of the sector. The revised draft contains a number of noteworthy proposals in this regard – these include:
Any proposal to amend charges for the supply of heat or failure to supply heat would need to be notified to the CRU. The CRU would be able to require heat undertakings to provide information relating to tariffs, costs and revenues and could issue directions in relation to same.
Heat undertakings would be obligated to maintain a register of vulnerable customers and comply with requirements to be established by the CRU governing the protection of such vulnerable customers. Heat undertakings would need to ensure that vulnerable customers are not disconnected for non-payment during the winter months, subject to conditions to be specified by the CRU.
Heat undertakings would need to publish and comply with a "customer charter" for household customers. The revised draft provides for the CRU to stipulate the minimum standards to be included in those charters. Customer charters would need to ensure that customers: are informed of their statutory rights; receive fair and transparent information on applicable prices and tariffs; are offered a choice of payment methods; are protected against unfair, misleading or predatory selling procedures; have access to simple and free of charge complaints procedures; and have a right to a contract setting out defined service levels, including compensation and refund arrangements where service levels are not met.
The CRU would be able to draw up guidelines for the development of codes of practice by heat undertakings. Those codes would seek to ensure that final customers are provided with a high standard of protection with regard to matters such as: billing; complaint handling; prepayment metering; disconnection; and sign up. Certain codes of practice could be restricted by the CRU to household customers only.
Under the revised draft, heat undertakings would need to provide a complaint handling service, following which disputes can be escalated to the dispute resolution service of the CRU – the procedures and detail of which are still to be published.
If implemented, these measures should help assure potential customers that service levels will be maintained and that pricing will be appropriately regulated. This should assist with creating the demand-profile necessary to justify development and address customer concerns that could otherwise inhibit investment in the sector.
Under the proposals, heat undertakings would be required to notify the CRU of any proposal to amend charges for the supply of heat in advance and periodically provide information relating to charges, costs and tariffs in such manner and frequency as the CRU may require. What the revised draft does not state, however, is that tariffs must be approved by the CRU. Despite this, an accompanying explanatory note implies that an approval requirement exists: it says licensed entities would need to "submit their tariffs, determined using the principle-based approach described in the Bill to the Commission for approval".
If it is the policy intention that tariffs must be approved by the CRU, this should be expressly stated in the legislation. Otherwise, it should be made clear that heat undertakings are free to set their own pricing methodology within the guidelines set by the CRU and subject to ongoing monitoring and intervention.
Developers and funders will need to understand whether pricing changes can be made responsively as costs, demand and operating conditions change or whether tariff changes will require formal regulatory approval before implementation.
The revised draft provides for the material expansion of the regulatory enforcement toolkit, with the intention being to underpin the strengthened consumer protection regime proposed.
The enforcement measures outlined are broadly in line with those set out in the Electricity Regulation Act 1999, providing comprehensive proposed powers of investigation. Potential major sanctions for non-compliance would include a financial penalty comprising a payment of up to €50,000 to cover the CRU's costs of investigation, plus a penalty of up to 10% of turnover.
Internal governance and compliance arrangements will therefore be critical from an early stage.
State acquisition powers have been retained in the revised draft, subject to a number of amendments. This remains one of the most important features of the proposed framework from an investor perspective, because it affects long-term ownership assumptions, exit planning, valuation and financing.
Under the plans, the state would indicatively have the right to acquire ‘strategic efficient district heating and cooling networks’ – more on which below – where it considers it to be in the public interest to do so, following the expiry of a 30-year period from the grant of the relevant heat network licence.
Any such acquisition would need to be based on an independent and fair valuation of the heat network in question. In the revised draft, wording which stated that such valuation "will take into consideration … any previous use of state funding to construct the heat network" has been removed. This change is helpful for projects that are, or may be, supported by grant funding. However, we expect that investors will seek further clarity on the valuation and transfer methodology to be employed in due course.
For example, the revised draft does not set out how extensions to heat network projects would be treated under the legislation – i.e. if a heat network is extended 10 years after the grant of the licence, it is not clear whether the extension could be acquired by the state following a further 20-year period only. Careful thought will need to be given as to how extensions will be treated. Potential options include:
There are additional points that will also need to be considered as the legislation progresses. These include matters to do with the transfer of ownership process itself – such as how the acquisition right is exercised, rights of appeal, whether there needs to be a transfer agreement entered into, and the timings for the transfer process.
The impact on investors and lenders also needs further consideration. Remaining project debt will need to be repaid in full, but where projects are not valued so that debt can be fully repaid, it would need to be clarified whether the risk of such a shortfall rests with developers – and, if so, developers will need to consider what steps they can take to manage this risk in their financing arrangements and how it might impact on project costs.
Consideration should also be given to the risk of unintended consequences arising from these provisions, such as whether the risk of a potential state acquisition could deter developers from investing in the maintenance and upgrading of existing networks after a certain point in the project lifecycle. Good practice should be incentivised through both a valuation methodology that does not discourage ongoing investment and a robust enforcement mechanism to ensure continued compliance with licence and customer service requirements.
The state may also seek to acquire a ‘strategic efficient district heating and cooling network’ where: it is being sold by the relevant network owner prior to the expiry of the 30-year period referred to above; the network owner ceases to trade; or the network owner goes into property receivership, examinership, liquidation, is declared bankrupt, becomes insolvent or is otherwise unable to provide heat.
Under the initial draft, the state was to be "afforded primacy … before any other interests are registered" in the right to acquire a heat network in such circumstances. This wording has been removed in the revised draft.
The practical implementation of this right remains unclear. In particular, the legislation should clarify how the state's early-exit acquisition right would operate alongside third-party sale processes, secured creditor enforcement, insolvency procedures and the ‘supplier of last resort’ mechanism that is contemplated – more on which, below. This will be important for funders assessing enforcement rights and for developers assessing whether they can recycle capital through ordinary market sale processes.
The policy objective appears to be continuity of operation for ‘strategic’ networks where an owner exits the market or can no longer provide heat. If that is correct, the bill should make clear whether state acquisition following market exit is intended to be a last resort protection where continuity of supply cannot otherwise be secured, or whether the state can exercise the right even where a credible private sector purchaser or step-in operator is available.
It is important that network owners are empowered to recycle capital for the market value of their projects. This will allow developers to reinvest in further growing and developing the heat network sector.
The revised draft contains an updated definition for a ‘strategic efficient district heating and cooling network’. This means a heat network that has strategic economic and societal – including climate and security of supply – importance for Ireland, a region or a local area and aligns with a series of specified criteria. Those criteria include:
A heat network can also be considered a strategic efficient district heating and cooling network where it does not meet all of the above criteria but it nevertheless has significant potential for expansion, demonstrates significant enough importance in the deployment of district heating and towards meeting Ireland’s climate action plan targets, demonstrates significant enough importance in the security of supply of energy to Ireland, and/or demonstrates significant enough importance in its coupling with the electricity market through thermal storage, as determined by the Heat Network Authority (more on which, below). The precise meaning of "significant enough" will need to be clarified in due course.
Only strategic efficient district heating and cooling networks are subject to the state's acquisition rights. This means that a network that recycles heat generated on the same site or provides heat to only one customer would likely not be subject to being potentially acquired by the state, unless it demonstrated significant importance or potential as contemplated above.
To avoid any chilling impact on the nascent district heating sector, it is proposed that the CRU's role as regulator be funded through contributions from the Exchequer rather than via a levy or licence fee. This source of funding would be subject to ongoing consideration and a review before 2035 is envisaged. The explanatory note published alongside the revised draft refers to a review taking place in or before 2031, however it is likely that this has not been updated from when the initial draft was published.
Ireland’s minister for the environment, climate and communications (the minister) would have flexibility to implement a levy once the sector has matured to the point that a levy would be sustainable, under the proposals. An explanatory note also expressly considers the possibility of a cross-funding levy on the gas and electricity sectors to fund the regulation of the heat network sector.
Heat Network Authority
The revised draft provides for the establishment of a Heat Network Authority (HNA) in Ireland. The functions of the HNA will include:
Responsibility for the operation and maintenance of heat networks under state ownership could also be handed to the HNA, according to the proposals. The establishment of the HNA reflects the ambition for a plan-led, efficient development of the sector.
It is further proposed that, pending the HNA’s establishment, the Sustainable Energy Authority of Ireland (SEAI) would continue as the interim HNA, building on the excellent work it has carried out in the sector to date.
The HNA would be responsible for preparing a ‘district heat network development plan’, to be revised every five years. That plan would need to cover the development of district heat networks, in order to support the planning process and deliver carbon reduction in line with government targets.
Under the revised draft, the plan would require approval by the minister. Approval by the CRU had been envisaged under the initial draft. This approach makes sense given that the district heat network development plan will essentially be a roadmap for the practical implementation of government policy in this space.
The concept of a transitional phase, as set out in the initial draft, has been removed from the revised draft. This is beneficial as investors should have the security of a clear legal and regulatory framework from the outset without an explicit cross-over to an enduring regime.
The legislative proposals provide for the CRU to take on the role of licensing authority and implement a licensing regime. It appears that this licensing regime would apply to all heat networks and not just strategic efficient district heating and cooling networks.
A heat network licence would be required for the operation of a heat network and the supply of heating and cooling to final customers and final users. However, differing from what was contemplated under the initial draft, a licence would not be required for the construction of a heat network or the supply of heat from heat producers to heat networks.
The CRU would be required to establish and keep a register of entities intending to develop a heat network. An entity registered as a heat network developer would be deemed to be authorised to apply for a road opening licence, which would incentivise registration in a timely manner.
The revised draft provides for the CRU to begin developing the licensing regime upon enactment of the legislation. The licence criteria and standard conditions would be subject to public consultation. There is provision for different classes of heat network to be established which can be subject to specific criteria. It may be the case that smaller heat networks or heat networks for use by only one customer, for example, are subject to a lighter touch licensing regime, ensuring a proportionate regulatory burden.
Each heat network licence would apply to a single heat network only, though as noted above, it is unclear how extensions to an existing heat network will be treated.
It is to be made an offence to operate a heat network without a licence, once the licensing regime is established. Until that point, the revised draft provides that for it to be an offence to develop or operate a heat network unless that heat network is registered with the CRU – heat networks already in operation will be given a reasonable timeframe to register. It is not clear from the revised draft whether it would remain an offence to develop a heat network without that heat network being registered after the licensing regime is established. This should be clarified in the legislation.
Ireland has the advantage of designing its regulatory framework before the market reaches significant scale. Implementing a clear licensing / registration structure at an early stage will promote standardisation and help avoid some of the complexity that regulators in more mature markets such as Britain have encountered when retrofitting consumer protection and operational requirements to an established range of diverse delivery models.
The revised draft explicitly provides for local authorities to be entitled to become fully involved in the heat network sector, including by:
These express enabling provisions, if enacted, should help reduce legal and regulatory uncertainty for local authorities and facilitate their role as major stakeholders in the heat network sector.
Under the proposed legislation, there would be an obligation on state authorities to connect to "available efficient district heating and cooling networks, where technically possible and economically cost effective, and where the connection will not contravene other requirements, such as an obligation to maintain a building which is a protected structure".
The reference to "efficient district heating and cooling networks" would appear to indicate that connection is mandated to networks that meet the definition of ‘efficient district heating and cooling’ as set out in the Energy Efficiency Directive. This is a wider category of asset than ‘strategic efficient district heating and cooling networks’, which would be beneficial for the uptake of the technology.
No detail is given at this stage on the meaning of "available", "technically possible" or "economically cost effective". "Available" and "technically possible" look to be relatively low thresholds to satisfy, assuming there is a network in the vicinity. Therefore, we expect the most significant test would be whether or not a connection is "economically cost effective". It will be interesting to see whether this concept will account for expenditure already made by public bodies on heating solutions. For instance, in circumstances where a public body has recently invested in installing more efficient gas boilers or electric heat pumps, it is not currently clear if that public body would be encouraged to use those assets for their reasonable operational life before incurring any additional cost in connecting to a heat network, to minimise inefficient expenditure.
An explanatory note states that a methodology is to be developed through consultation to determine the relevant technical and economic feasibility criteria.
Experience in Britain highlights the importance of carefully aligning any mandatory connection arrangements with public procurement requirements. Public sector organisations, such as hospitals, are often critical anchor customers for heat network projects. However, procurement obligations can create additional complexity when entering long-term heat supply arrangements. Consideration will be required as to how public sector connection requirements interact with procurement law to ensure that these anchor loads can be accessed by networks.
It should also be considered whether a connection mandate should apply to any other potential offtakers beyond the public sector, such as new housing developments.
The revised draft contains significant additional detail on road opening arrangements, physical connection works, mapping requirements and permitted temporary interruptions to service.
In the event of a temporary interruption to service for an emergency, in order to execute necessary works or in such other circumstances as may be prescribed, heat network operators would have to restore services as soon as possible and arrange for an alternative heat supply in the case of outages of more than 24 hours.
These provisions are important from a developer perspective, providing some additional clarity around construction consents, local authority interfaces, customer connection responsibilities, operational record-keeping and outage management.
Notably, unlike other regulated utility sectors, the revised draft does not appear to provide heat network developers with compulsory wayleave / easement or acquisition rights. The policy intent appears to be that where heat networks cross private land, it must be by way of agreement. This may have the unintended consequence of creating ‘ransom strips’ which will raise development costs and could even put some potential projects at risk. This merits further consideration as the legislation progresses.
Supplier of last resort
The revised draft defines the ‘supplier of last resort’ as "a third-party supplier identified under the heat network licence … to operate and/or supply heat in the event of a security of supply or supplier failure incident".
It is not yet clear how the identity of a supplier of last resort would be determined. This could be an eventual function of the HNA as, in a nascent market, it may be difficult to identify a suitable counterparty to take on this role.
In the event of a security of supply incident, being where heat is not supplied to final customers in accordance with licence requirements and there is an ongoing and unremedied interruption to supply, the CRU would be required to revoke the heat network licence and appoint the supplier of last resort to operate as the heat network operator or heat network supplier.
How this mechanism will operate in practice and interact with the state's right of acquisition post-market exit remains to be determined. Investors will require clarity on the precise circumstances where the CRU will take steps to revoke a licence, their opportunity to remedy and how a supplier of last resort regime will operate in practice – including whether a failing network operator would be required to transfer ownership of physical network assets to a competitor in such circumstances.
The minister would have powers to make additional regulations in relation to continuity of supply in consultation with the CRU, under the proposed new regime. We expect this element of the legislation to be developed further as the sector takes shape.
Publication of the revised draft is a positive step forward for heat networks in Ireland. The proposals provide a more developed framework for pricing, consumer protection, licensing, enforcement, state acquisition, public sector demand and the practical development of heat network infrastructure. However, important questions remain that will need to be resolved if the legal and regulatory framework is to be sufficiently clear and bankable for developers, funders, heat producers and offtakers.
Specific points to be addressed include:
Written by
OUT-LAW ANALYSIS
16 Jun 2026
