ANNEX

1.   INTRODUCTION

These guidelines provide guidance to Member States on how to interpret Article 26 of Directive (EU) 2023/1791 when transposing it into their national legislation. They are intended purely for the purposes of transposing and implementing of Directive (EU) 2023/1791, and do not provide interpretation in the context of other legal acts. Article 26 of Directive (EU) 2023/1791 replaces Article 14 of Directive 2012/27/EU. Article 26 of Directive (EU) 2023/1791 addresses heating and cooling (‘H&C’) supply and the efficiency of district heating and cooling (‘DHC’).

Nonetheless, the binding interpretation of Union legislation is the exclusive competence of the Court of Justice of the European Union.

2.   LEGAL AND POLICY CONTEXT

Article 26 of Directive (EU) 2023/1791 encourages the conversion towards a clean and carbon-neutral H&C supply. To reach the Union’s energy and climate goals, the H&C sector must sharply reduce its energy consumption and its use of fossil fuels as in 2022, only 24,9 % of the energy used for H&C originated from renewable energy sources (RES) (1).

Article 26 of Directive (EU) 2023/1791 is closely linked to some of the requirements set out by the following legal acts of the Union:

—

Directive (EU) 2018/2001 of the European Parliament and of the Council  (2) (‘Renewable Energy Directive’ or ‘RED’) – with regard to DHC provisions, Articles 23 and 24 of the RED are relevant. In the RED, targets are set for the share of renewables and waste heat and cold. Member States are required to encourage DHC operators to connect third parties. Member States are also required to put in place a coordination framework to facilitate the use of waste heat and cold. The review of the definition of efficient DHC under Directive 2012/27/EU is an important complement to the review of the DHC provisions in the RED. The RED specifies conditions for exemptions on disconnection, network access and the indicative annual average renewable energy’s share increase requirement at Member State level, while Directive (EU) 2023/1791 focuses on the share of renewable energy sources only at a single DHC system level;

—	Directive (EU) 2019/944 of the European Parliament and of the Council  (3) – Article 8 of that Directive is relevant for the authorisation procedure referred to in Article 26(9) of Directive (EU) 2023/1791;

—

Directive (EU) 2024/1275 of the European Parliament and of the Council  (4) (‘Energy Performance of Buildings Directive’ or ‘EPBD’) – for the DHC, EPBD provisions on integration of solar energy in buildings (Article 10) and requirements for zero-emission buildings (Article 11) are the most relevant. Heating or cooling supply from efficient DHC can cover total annual primary energy use of a new or renovated zero-emission building;

—	Commission Delegated Regulation (EU) 2015/2402  (5) – Provides reference values to calculate primary energy savings from high-efficiency cogeneration, as referred to in Article 26(13) of Directive (EU) 2023/1791.

Furthermore, the Article 26 of Directive (EU) 2023/1791, and specifically the way in which efficient DHC and high-efficiency cogeneration are regulated, impacts other legal acts and guidelines on the Union level. These legal acts and guidelines are related to the eligibility of projects and installations for public funding, as those installations not complying with Article 26 of Directive (EU) 2023/1791 may be excluded on certain conditions. This concerns acts such as Guidelines on State aid for climate, environmental protection and energy (6), Regulation (EU) 2023/1315 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty (7) (‘General Block Exemption Regulation’ or ‘GBER’), Council Directive 2003/96/EC (8) and legislation governing the use of cohesion funds and the Recovery and Resilience Facility.

With regards to the Recovery and Resilience Facility, the Commission published the ‘Guiding template: District heating/cooling generation and distribution infrastructure’  (9). It specifies that state aid ‘shall only be granted for investments in the construction, extension or upgrade of district heating and/or cooling systems that are or are to become energy efficient’ (paragraph 54) as regulated in Directive (EU) 2023/1791.

Heating or cooling supply from efficient DHC is also supported from cohesion funds. Regulation (EU) 2021/1060 of the European Parliament and of the Council (10) (‘Common Provisions Regulation’) foresees in its Annex I specific codes for the types of intervention for the European Regional Development Fund, European Social Fund Plus, Cohesion Fund and Just Transition Fund. In the Common Provisions Regulation, two intervention codes are applicable for district heating projects: code ‘054’ for district heating and cooling, and code ‘055’ for efficient DHC with low lifecycle emissions. The second one is linked to a higher coefficient for the calculation of support to climate change objectives, and thus contributes more to the Member States obligations in terms of climate concentration laid down in the Common Provisions Regulation. However, in the limited scope of cohesion policy as expressed in the Common Provisions Regulation, the definition of intervention code ‘055’, which is applicable to obtain a higher climate coefficient, still refers to the definition of efficient DHC contained in Article 2(41) of Directive 2012/27/EU.

In addition, Article 26 is interlinked with other provisions of Directive (EU) 2023/1791, namely:

—	Article 2: see the definitions discussed in Chapter 3 of this Annex.

—	Article 11: Member States have the option of requiring in the energy audits an assessment of the technical and economic feasibility of connection to an existing or planned district heating or cooling network;

—	Article 25: an obligation of Member States to notify a comprehensive heating and cooling assessment as a part of its integrated National Energy and Climate Plan and its updates;

—	Article 30: an obligation of Member States to promote the establishment of financial support schemes to increase the uptake of energy efficiency improvement measures for the substantial refurbishment of district heating and cooling systems.

Article 26 of Directive (EU) 2023/1791 is composed of the following main provisions:

—	an update of the criteria to be met by efficient DHC (‘Efficient District Heating and Cooling’ or EDHC), which establishes a clear step-by-step approach to increase energy efficiency and the decarbonisation of heat and cold supply (Article 26(1));

—	an alternative approach to meeting the EDHC criteria set by Article 26(1), which Member States might opt for, which uses sustainability performance criteria based on the amount of GHG emissions from the DHC per unit of heat or cold delivered to customers (Article 26(2) and (3)) (11);

—	additional conditions for a situation in which an EDHC is built or an existing DHC is converted into EDHC (Article 26(4));

—	mandatory transformation plans as from 1 January 2025 for existing DHC not complying with the requirements of EDHC, to ensure more efficient consumption of primary energy, reduce distribution losses and increase the share of renewable energy in H&C supply (Article 26(5));

—	an obligation for Member States to ensure that data centres with a total rated energy input exceeding 1 MW utilise the waste heat or other waste heat recovery applications unless it is not technically or economically feasible (Article 26(6));

—	requirements for an installation-level cost-benefit analysis (CBA) to be carried out where new installations or substantial refurbishments are planned in order to assess the economic feasibility of increasing energy efficiency of H&C supply (Article 26(7));

—	a possibility for Member States to also exempt specific installations from mandatory CBA (Article 26(8)).

The provisions in Article 26(9) to (14) of Directive (EU) 2023/1791 did not change when compared to Article 14 of Directive 2012/27/EU, except Article 26(12) on collecting the information on the performed CBAs.

In terms of chronological order, the requirements set out in Article 26 of Directive (EU) 2023/1791 are to be applied or completed as follows:

Table 1

Deadlines of transposing requirements of Directive (EU) 2023/1791

Paragraph	Requirement	Deadline
Article 26(1)	EDHC shall use at least 50 % renewable energy, 50 % waste heat, 75 % cogenerated heat or 50 % of a combination of such energy and heat	Until 31 December 2027
	EDHC shall use at least 50 % renewable energy, 50 % waste heat, 50 % renewable energy and waste heat, 80 % of high-efficiency cogenerated heat or at least a combination of such thermal energy going into the network where the share of renewable energy is at least 5 % and the total share of renewable energy, waste heat or high-efficiency cogenerated heat is at least 50 %	From 1 January 2028
	EDHC shall use at least 50 % renewable energy, 50 % waste heat, or 50 % renewable energy and waste heat, or a system, where the total share of renewable energy, waste heat or high-efficiency cogenerated heat is at least 80 % and in addition the total share of renewable energy or waste heat is at least 35 %	From 1 January 2035
	EDHC shall use at least 75 % renewable energy, 75 % waste heat or 75 % renewable energy and waste heat, or a system using at least 95 % renewable energy, waste heat and high-efficiency cogenerated heat and in addition the total share of renewable energy or waste heat is at least 35 %	From 1 January 2040
	EDHC shall use at least 75 % renewable energy, 75 % waste heat or 75 % renewable energy and waste heat	From 1 January 2045
	System using only renewable energy, only waste heat, or only a combination of renewable energy and waste heat	From 1 January 2050
Article 26(2)	A notification to the Commission to use sustainability performance criteria to define EDHC	11 January 2024
	Max amount of GHG/unit: 200 grams/kWh	Until 31 December 2025
	A notification to the Commission to use sustainability performance criteria to define EDHC	30 June 2025
	Max amount of GHG/unit: 150 grams/kWh	From 1 January 2026
	A notification to the Commission to use sustainability performance criteria to define EDHC	30 June 2034
	Max amount of GHG/unit: 100 grams/kWh	From 1 January 2035
	A notification to the Commission to use sustainability performance criteria to define EDHC	30 June 2044
	Max amount of GHG/unit: 50 grams/kWh	From 1 January 2045
	A notification to the Commission to use sustainability performance criteria to define EDHC	30 June 2049
	Max amount of GHG/unit: 0 grams/kWh	From 1 January 2050
Article 26(5)	Planning to become EDHC	From 1 January 2025
Article 26(8)	Notification of the exemptions adopted under paragraph 8	When exemptions are adopted
Article 26(10)	Notification of the exemptions granted to individual installation declining to implement measures with a positive cost-benefit outcome identified in the cost-benefit analysis	Three months after the exemptions are granted
Annex III	New and substantially refurbished high-efficiency cogeneration (HECHP) units must meet the GHG emission threshold of less than 270 gCO2/kWh	12 October 2025
	All HECHP units must meet the GHG emission threshold of less than 270 gCO2/kWh	From 1 January 2034

3.   OBLIGATIONS RELATED TO ENERGY EFFICIENCY IN HEATING AND COOLING IN ARTICLE 26 OF DIRECTIVE (EU) 2023/1791

3.1.   Criteria of EDHC (default and alternative approach): Article 26(1) and (2) of Directive (EU) 2023/1791

3.1.1.   Scope of the requirements, relevant definitions and terms

The obligations arising from Article 26(1), (2) and (3) of Directive (EU) 2023/1791 apply to DHC systems and to their operators. Some of the terms used in Article 26 are clearly defined in Article 2 of Directive (EU) 2023/1791, but some of the definitions such as DHC require additional clarification, as follows:

Cogeneration

‘Cogeneration’ (cogeneration of heat and power, CHP), as defined in Article 2, point (36), of Directive (EU) 2023/1791, takes place in units which are, in accordance with Article 2, point (43), installations able to operate in cogeneration mode. That implies, in the Commission’s view, that in installations where steam is used in parallel for multiple processes including CHP, only process involving simultaneous generation of thermal energy and electrical or mechanical energy can be considered as CHP.

High-efficiency cogeneration

Article 2, point (40), of Directive (EU) 2023/1791 and Annex III thereto set out the definition of ‘high-efficiency cogeneration’ (HECHP). For CHP to qualify as an HECHP plant, it needs to save 10 % (12) primary energy compared to separate heat and electricity production and meet the specific emissions and fuel use criteria of Annex III.

District heating and cooling

‘District heating and cooling’ (DHC) is defined by the Renewable Energy Directive (13) and the Energy Performance of Buildings Directive (14). However, it is recommended to use the same principles for the definition of DHC as set out in earlier guidelines for the implementation of Directive 2012/27/EU. In accordance with the reporting instructions for completing the DHC template pursuant to Article 24(6) of Directive 2012/27/EU provided by Eurostat (15), the thermal energy that is to be counted as heat or cold from a DHC network must be:

—	produced in a site other than the one where it is consumed;

—	sold (as reported in the Annual Electricity and Heat Questionnaire) to either of the following: — multiple buildings owned or occupied by at least two different customers; — multiple sites owned by at least two different customers.

DHC operator

In the Commission’s view, a ‘DHC operator’ should be understood as a private or public company that owns and operates a DHC network and distribution system which delivers heat or cold to end users.

Building

The Commission considers that a ‘ building’ should be defined in the same way as in Article 2(1) in the EPBD, namely ‘a roofed construction having walls, for which energy is used to condition the indoor environment’.

Site

‘Site’ is not defined in Union legislation but should be understood as a defined space that includes buildings or any other facility involving an economic activity such as industrial processes or services.

3.1.2.   Default approach to the criteria of EDHC

To deliver on the objectives of ensuring more efficient consumption of primary energy and increasing the share of renewable energy in heating and cooling supply going into the DHC network, Article 26(1) of Directive (EU) 2023/1791 lays down a common methodology for assessing whether a DHC system is ‘efficient’, based on the share of renewable energy, waste heat and (high-efficiency) cogeneration ((HE)CHP). The criteria are based on thermal energy going into the network and therefore concern thermal energy on the supply side at the point of injection (after conversion by the heat/cold generation unit).

The purpose of criteria for EDHC is to ensure that DHC systems contribute to the long-term climate policy goals and energy efficiency targets. To achieve this, EDHC systems need to increase the efficiency of primary energy consumption by using efficient energy generation technologies or integrating waste heat. Also, the share of renewable energy should be gradually increased in EDHC systems to reduce greenhouse gas emissions.

The shares of renewable energy, waste heat and heat from the (HE)CHP plant going into the network determine whether a DHC system is ‘efficient’. In the default approach, requirements for the EDHC are tightened in five consecutive steps: in 2028, in 2035, in 2040, in 2045 and in 2050. Key effects of this schedule are:

—	until 2035, the EDHC status can be met through HECHP only, or a combination of a 5 % share of RES and 45 % of HECHP, renewable energy and/or waste heat;

—	from 1 January 2035 onwards, systems using only fossil fuels cannot be qualified as EDHC;

—	from 2035 to 2045, 35 % of the heat supplied in EDHC should originate from RES and waste heat. HECHP can still contribute up to 45 % until 2040 and 60 % until 2045, while the share of CHP not meeting the criteria for HECHP is reduced;

—	from 2045 onwards EDHC systems must include at least 75 % renewable energy and waste heat and HECHP stops counting towards meeting the criteria;

—	from 2050 all the input to EDHC must be from renewable energy or waste heat.

The share of renewable energy, waste heat and heat from the (HE)CHP plant going into the network are measured at the handover point between the energy conversion technology and the network. In Figure 1, the energy going into the network is called ‘gross final energy’.

Figure 1

Nomenclature of energy flows in DHC networks.

Source:

JRC (16).

‘Renewable energy’ is defined in Article 2, point (1), of the RED. It includes energy generated from wind, solar (thermal and solar photovoltaic) and geothermal energy, osmotic energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas and biogas.

However, given the need to ensure a level playing field in district heating systems for all renewable energy supply options, all the heat supply from heat pumps needs to be accounted when assessing the compliance with the EDHC criteria in the context of the relevant articles of Directive (EU) 2023/1791 (17). To this end, recital 107 of Directive (EU) 2023/1791 establishes that all the heat generated by a heat pump should be counted under Directive (EU) 2023/1791 as renewable energy provided that the heat pump meets the minimum efficiency criteria set out in Annex VII to RED at the time of its installation.

To ensure consistency regarding the requirements on the use of biomass and biofuels it is strongly advised to count towards the renewable energy threshold only biomass and biofuels that achieve the sustainability criteria of the RED. Otherwise, the proliferation of sustainable biomass and biofuels might be hindered through, for example, a lower rate of cost decreases.

Efficient DHC systems should increase efficiency of primary energy use and the progressive integration therein of renewable and waste heat and cold. ‘Waste heat and cold’ is defined in Article 2, point (9) of the RED as unavoidable heat or cold generated as by-product in industrial or power generation installations, or in the tertiary sector, which would be dissipated unused in air or water without access to a DHC system, where a cogeneration process has been used or will be used or where cogeneration is not feasible (18). This definition should be used for the provisions of Directive (EU) 2023/1791 related to efficient district heating and cooling (19), in view of the objective of Article 26 of Directive (EU) 2023/1791 to ensure more efficient consumption of primary energy and maximising the reuse and recovery of waste heat.

Heat from CHP (or HECHP) is counted towards the thresholds specified in the EDHC criteria when it originates from the installations compatible with the definitions of the CHP (or HECHP) provided in Article 26(1), points (a) to (d) of Directive (EU) 2023/1791.

The methodology to identify EDHC should follow a 3-step approach as presented with further details in Appendix A.

3.1.3.   Alternative approach to the definition of EDHC

In addition to the criteria of EDHC based on the shares of energy supplies, Article 26(2) and (3) of Directive (EU) 2023/1791 set out an alternative approach based on GHG emissions per unit of heat or cold delivered to customers. To apply that alternative approach, GHG emissions and the amount of heat or cold delivered to customers should be known in order to calculate the emissions factors per unit of energy.

The emissions to be covered in checking the compliance with the criteria of EDHC are those which are directly related to the generation of heat and cold, for example, through the combustion of an energy carrier. In the Commission’s view, emissions from indirect emission sources, such as those arising through the production or storage of the energy carrier, are excluded.

The amount of heat or cold delivered to customers includes each unit of heat or cold delivered to customers, typically measured through a metering system. For the purposes of Article 26(2) of Directive (EU) 2023/1791, energy amount delivered to customers are to be measured and reported in kWh. In Figure 1, such energy amount is referred to as ‘final energy’. Final energy can significantly differ from gross final energy due to distribution losses, which may increase the emission intensity per delivered unit.

The methodology to identify EDHC should follow a 5-step approach as presented in Appendix B.

3.1.4.   Different uses of the EDHC criteria and possible related policy options

Article 26(1), (2) and (3) of Directive (EU) 2023/1791 do not set out the cases in which the criteria of EDHC are to be applied. Instead, the use of the criteria is set out in other provisions of Article 26 of Directive (EU) 2023/1791, particularly in paragraphs (4) and (5). Additional guidance for such cases is provided in Section 3 of this Annex.

In addition to the mandatory application of the criteria provided for in Article 26(1) and (2) of Directive (EU) 2023/1791, there are several opportunities to use the criteria of EDHC at Member States’ level. They are not mandatory and depend on the specific implementation by each Member State.

Member States may support EDHC systems provided such support complies with State aid rules or General Block Exemption Regulation, and is also in line with the legislation governing and guidelines provided on the use of Cohesion Policy funds or Recovery and Resilience Facility. When providing support to EDHC systems, it is important to establish a mechanism to ensure ongoing compliance with the criteria, for example by conducting ad hoc controls or audits at the facilities of the DHC system in order to verify the energy mix the system is supplied with.

Member States may promote voluntary commitments to maintain the standard of EDHC by DHC operators. For that purpose, in the Commission’s view, certificates or labels for EDHCs, requiring a complete monitoring, reporting and verification scheme, could be established. That would increase public exposure of efficient DHC systems, possibly leading to expanding market shares of such systems, and thereby contributing to meeting the headline targets for energy and emission savings.

3.2.   Applying the definition of EDHC to the newly built and refurbished DHC systems: Article 26(4) of Directive (EU) 2023/1791

3.2.1.   Relevant definitions and terms

Article 2, point (50), of Directive (EU) 2023/1791 defines ‘substantial refurbishment’ as a refurbishment the cost of which exceeds 50 % of the investment cost for a new comparable unit. The definition of substantial refurbishment only addresses the cost of the refurbishment and does not address the types of works that can be considered as refurbishment. Typically, a DHC system refurbishment project includes two types of costs, as follows, which both should be taken into account in the assessment (20):

—	costs related to technical aspects such as the integration of new technologies, the optimisation of existing technologies and the replacement of worn-out equipment and components;

—	costs related to non-technical aspects, such as project management, stakeholders’ consultations, financial viability analysis, permitting procedures, monitoring, compliance with national, regional and local regulations and policies.

The ‘ investment cost of a new comparable unit ’ could be understood as the total investment cost of a completely new DHC system, including:

—	the generation units, to comply with the EDHC criteria set out in Article 26(1) or (2) of Directive (EU) 2023/1791;

—	the network, including storage and distribution infrastructure;

—	the delivery at all similar points of consumption (including all heat exchangers if they must be replaced).

Given the broad range of refurbishment costs and given the fact that they are network-specific, Member States need to clearly establish who is responsible for estimating such costs and possibly how they have to be estimated. Appendix C sets out a list of suggested eligible costs and a methodology for quantifying them.

3.2.2.   Qualification of a DHC system as an EDHC system

Article 26(4) of Directive (EU) 2023/1791 steers investments made by Member States towards the construction of new or a substantial refurbishment of a DHC system and/or their supply units. Where the conditions set out by Article 26(4) of Directive (EU) 2023/1791 are met, the results of the investments should qualify as EDHC.

To ensure implementation of Article 26(1) and (2) in refurbished DHC systems, Member States should assess whether the refurbishment is substantial or not. In the Commission’s view, this can be done also by DHC operators.

Figure 2 illustrates the workflow to assess whether an installation qualifies as EDHC after the refurbishment and the links between the provisions of Article 26(1), (2) or (3) of Directive (EU) 2023/1791 and the conditions set out in Article 26(4) of that Directive.

Figure 2

Flowchart of the procedure to categorise district heating or cooling system

In order to qualify as EDHC (for example to be eligible for public support), Member States are to ensure that where a DHC system is built or its supply units are substantially refurbished, they meet both the following conditions:

Condition 1: the DHC system meets the criteria set out in Article 26(1) or (2) of Directive (EU) 2023/1791 applicable at the time when it starts or continues its operation after the refurbishment;

Condition 2: there is no increase in the use of fossil fuels other than natural gas in existing heat sources, and any new sources in that system do not use fossil fuels, except natural gas if the DHC is built or substantially refurbished until 2030.

Those two conditions must be met by all DHC systems aiming to qualify as an EDHC, regardless of their size. Member States may require that DHC operators are responsible for ensuring that the two conditions are met, which will also require the support from heat producers (operators of the generation units) and end users to collect the necessary data.

To ensure both conditions are met, Member States should include them as eligibility criteria for public funding and/or support. The eligibility should be verified via a compliance assessment, which consists of at least the following one or two steps depending on whether the system is new or substantially refurbished:

Step 1 (for refurbished systems only): assess whether the refurbishment is substantial.

Step 2 (for all systems applying for public support): verify compliance with the two conditions set out by Article 26(4) of Directive (EU) 2023/1791.

In Step 1, the assessment should consist in estimating and comparing the following two cases:

Case 1: Ex ante (before the refurbishment works have started) estimation of the total refurbishment costs of the DHC system or heat supply unit.

Case 2: Estimation of the investment costs of a new comparable DHC system or heat supply unit.

The refurbishment level of the system or the heat supply unit is substantial when the refurbishment costs of DHC heat supply unit or DHC system exceed 50 % investment costs of new comparable DHC heat supply unit or DHC system. If the refurbishment level is considered as ‘substantial’, DHC operators applying for public support should ensure compliance with efficient DHC criteria and continue with Step 2.

In Step 2, compliance with criteria on the use of fossil fuels is assessed. The verification of compliance with EDHC criteria could be made in accordance with the methodology set out in section 3.1.2 or 3.1.3 of this Annex.

The methodology to assess the compliance with criteria on the use of fossil fuels is different for new and existing heat sources. For existing heat sources, Member States should ensure that there is no increase in the use of fossil fuels other than natural gas compared to the annual consumption averaged over the previous three calendar years of full operation before refurbishment. For new heat sources, Member States should ensure that they do not use fossil fuels, except natural gas, until 2030.

Where public support is provided to DHC through an open call, the methodology for conducting a compliance assessment with the EDHC criteria should be transparent and clearly described in the public support application procedure.

3.3.   Mandatory planning to increase efficient use of primary energy and renewable energy use: Article 26(5) of Directive (EU) 2023/1791

3.3.1.   Scope of the requirements, relevant definitions and terms

Article 26(5) of Directive (EU) 2023/1791 requires Member States to ensure that a DHC system above a specific threshold, that is to say heat and cold output exceeding 5 MW, is to either meet the criteria of EDHC set out in Article 26(1) of Directive (EU) 2023/1791, or prepare a plan to ensure more efficient consumption of primary energy, to reduce distribution losses and increase the share of and renewable energy or waste heat and cold in H&C supply. The purpose of the plan is to provide measures to meet the criteria set out in Article 26(1), points (b) to (e).

Parties concerned by Article 26(5) are DHC operators with support from the main heat and/or cold suppliers. Figure 3 illustrates the necessary steps and identification of parties subject to planning obligation.

Figure 3

Flowchart of the procedure to identify a need to prepare a plan to convert the system into efficient district heating and cooling system

The term ‘ total heat and cold output ’ should be interpreted as a capacity rather than an energy volume, as it should be compared to a 5 MW threshold which refers to a heat/cold capacity. That threshold of total heat and cold output exceeding 5 MW does not specify which capacity should be considered, as it does not specify the measurement point. To operationalise that indicator, it is recommended to use the installed capacity of all heat generation units injecting into the DHC system. Importantly, heat generation capacity only used at times of peak demand, that is to say less than a few hours per year, yet permanently connected to the DHC system, should be excluded from the calculation.

To ensure the correct application of the term ‘ total heat and cold output ’ in practice, multiple options are available to the Member States. For example, the measurement and calculation could be carried out by independent experts and results could be verified through random and unannounced checks by the competent authority. Furthermore, the verification process can be sped up by a regular monitoring of the energy mix a DHC system is supplied with, for example, through digital metering.

3.3.2.   Establishing which operators are concerned by Article 26(5) of Directive (EU) 2023/1791

To ensure a common approach to the identification of DHC system operators, two aspects require clarification; the threshold itself and whether the DHC system complies with the criteria set out in Article 26(1), points (b) to (e), of Directive (EU) 2023/1791.

For all DHC systems with a total capacity above 5 MW it should then be verified whether they comply with the criteria set out in Article 26(1), points (b) to (e), of Directive (EU) 2023/1791 or, alternatively, the criteria set out in Article 26(2), points (b) to (e), of that Directive. The verification should follow the methodology presented in section 3.1.2 or 3.1.3 of this Annex. Where the DHC system complies with the EDHC criteria, then no further action is required. Where the DHC does not comply with the EDHC criteria, its operator should prepare a plan to increase efficient use of primary energy and renewable energy use.

3.3.3.   Plan to ensure more efficient consumption of primary energy and renewable energy use

Pursuant to Article 26(5) of Directive (EU) 2023/1791 the 5-years plans have the objective of increasing efficient use of primary energy and the share of renewable energy, reducing distribution losses and setting out measures to bring the DHC system into compliance with Article 26(1), points (b) to (e), of Directive (EU) 2023/1791.

The plan should provide a long-term perspective for the development of the DHC system to ensure that upgrading operations reinforce each other. For that purpose, it would be desirable the plan would already anticipate the following 5 years.

DHC operators should be recommended to consult relevant stakeholders when drafting the plan, such as the operators of main heat and/or cold generation units, local authorities, technicians and managers employed by the DHC operator, external experts and individuals affected by the upgrading works, customers as well as other local citizens and communities.

It is recommended for the plan to contain at least the following sections:

(a)	a description of the current state of the DHC system, regarding supply, network efficiency and demand, including operating temperature;

(b)	the future demand and expansion of the network;

(c)	the potential of covering current and future demand by renewable energy sources and waste heat;

(d)	a specify target state/system (demand and supply), for example which potentials will be exploited and when;

(e)	energy efficiency of the entire system: losses, options to decrease the temperature level (depending on the current practice) at demand and network sides;

(f)	the establishment of a strategy and individual measures, with timing.

Within each of the sections set out in points (a) and (b), the operators should provide specific and detailed information. The section on policy measures in Appendix D contains further advice on what could be included in the plan to ensure more efficient consumption of primary energy and renewable energy use.

A plan fulfils the requirements of Article 26(5) of Directive (EU) 2023/1791 if the results set out in Appendix E either lead to full compliance with Article 26(1) or, at least, represent significant steps towards such compliance.

Appendix E contains a more detailed description of the contents of a plan.

3.3.4.   Approval of the plans by the competent authority

The Member States should designate a competent authority for approving the plans of DHC operators. Directive (EU) 2023/1791 does not describe the procedures for such approval and competent authorities should follow the procedures applied in similar administrative tasks on a national or a regional level.

3.4.   Ensuring efficient use of waste heat from data centres: Article 26(6) Directive (EU) 2023/1791

Article 26(6) of Directive (EU) 2023/1791 requires Member States to ensure utilisation of waste heat or other waste heat recovery applications in data centres with a total rated energy input exceeding 1 MW unless they can show that it is not technically or economically feasible in accordance with the assessment referred to in paragraph 7. In the Commission’s view, this obligation applies to all operating data centres above 1 MW threshold where waste heat or other waste heat recovery applications are not currently used. In data centres, where waste heat is not used or there is no other waste heat recovery application, an assessment of potential use of waste heat needs to be done in accordance with the procedure referred to in paragraph Article 26(7) of Directive (EU) 2023/1791.

3.5.   Installation level cost-benefit analysis for new or substantially refurbished facilities: Article 26(7) and (8) of Directive (EU) 2023/1791

3.5.1.   Scope of the requirements

Article 26(7) of Directive (EU) 2023/1791 requires Member States to ensure that operators of thermal electricity generation installations, industrial installations, service facilities (such as large commercial buildings, wastewater treatment facilities, electrical substations and LNG facilities) and data centres (as listed in Article 26(7), points (a) to (d), of Directive (EU) 2023/1791) carry out a Cost-Benefit Analysis (CBA). Such analysis are to be carried out when they plan to build new or to substantially refurbish energy production capacities or a facility above a certain energy input threshold (varying per type of installation), to assess the economic feasibility of increasing energy efficiency of H&C supply.

Figure 4 illustrates the necessary steps and identification of parties required to carry out a CBA, including for the data centres according to Article 26(6).

Figure 4

Flowchart to identify the need of a Cost-Benefit Analysis and its procedure

Directive (EU) 2023/1791 does not specify who should be responsible for overseeing and for conducting the CBA. It indicates that Member States are to require the CBA to be carried out in cooperation with the companies responsible for the operation of the facility. A common-sense solution would be to assign the task of carrying out the analysis to the operators of new or substantially refurbished installations, while Member States would designate competent authorities responsible for providing the common methodology, assumptions and timeframes for at least the economic analysis and would also ensure that the assessments are well-founded, through a third-party validation, for example.

It is suggested to Member States to choose to be more involved, for example by helping to coordinate with interested parties, such as consumers and H&C producers, or data gathering (as suggested in Annex XI to Directive (EU) 2023/1791). That involvement would have the benefit of creating possibilities of synergies between the comprehensive assessment set out in Annex X to Directive (EU) 2023/1791 and the CBA, set out in Annex XI to Directive (EU) 2023/1791.

Table 2 illustrates that the purpose of the CBA varies according to the type of installation. Whereas Directive 2012/27/EU required to conduct CBA for both heat sources (power plants and industrial installations) and heat sinks (DHC networks), Directive (EU) 2023/1791 only deals with heat sources that recover and transform energy and transfer it to alternative sinks.

Table 2

Applicable thresholds for facilities and installations

Reference in Directive (EU) 2023/1791	Plan for (new or refurbished)	Threshold	Objective of the CBA
Article 26(7), point (a)	Thermal electricity generation installation	Average annual total energy input exceeding 10 MW	Assess costs and benefits of providing for the operation of the installation as a high-efficiency cogeneration installation.
Article 26(7), point (b)	Industrial installation	Average annual total energy input exceeding 8 MW	Assess utilisation of waste heat on-site and off-site.
Article 26(7), point (c)	Service facility (e.g., wastewater treatment facilities and LNG facilities)	Average annual total energy input exceeding 7 MW	Assess utilisation of waste heat on-site and off-site.
Article 26(7), point (d)	Data centre	Total rated energy input exceeding 1 MW	Assess costs and benefits, including but not limited to technical feasibility, cost-efficiency and impact on energy efficiency and local heat demand (incl. seasonal variation), of utilising the waste heat (from the cooling system) to satisfy economically justified demand and of the connection of that installation to a district heating network or and efficient/renewable energy based district cooling system or other waste heat recovery applications.   The CBA is to consider cooling system solutions that allow removing or capturing the waste heat at useful temperature level with minimal ancillary energy inputs.

In the Commission’s view, the results of the CBA should also be used to comply with the requirements of Article 26(6) of Directive (EU) 2023/1791, which requires Member States to ensure that data centres with a total rated energy input exceeding 1 MW utilise waste heat or other waste heat recovery applications. If the CBA shows that it is not technically or economically feasible to do so, data centres do not have to utilise the waste heat or other waste heat recovery applications.

Technical feasibility should be understood as depending on the characteristics of the data centre and on the availability of technical or technological solutions to utilise waste heat or other waste heat recovery applications, without compromising the purpose and primary activities of the data centre.

Economic feasibility should be understood as the ability of a project of waste heat or waste heat recovery applications utilisation by a data centre to be economically viable or sustainable, that is to say to generate enough revenue or value to cover its costs and provide a reasonable remuneration of risk and return on investment. In the Commission’s view, economic feasibility should take into account factors such as production costs, financing options, risks and the potential for profit or savings.

Table 3 sets out the suggested methodology to determine whether the total energy input of an installation is below or above the threshold set by Article 26(7) of Directive (EU) 2023/1791 that is to say 10 MW for thermal electricity generation installations, 8 MW for industrial installations, 7 MW for service facilities or 1 MW for data centres. Table 3 of this Annex provides a description of how the different production capacities should be calculated/determined. The ‘total energy input’ should be interpreted as a production capacity rather than an energy volume (measured in MWh), as it should be compared to a given threshold (expressed in MW) which refers to a heat/cold capacity. When addressing total energy input (or production capacity), Article 26(7) of Directive (EU) 2023/1791 should be understood as referring to the production capacity of the installation concerned.

Table 3

Suggested methods to identify input capacity of facilities and installations.

Reference in Directive (EU) 2023/1791	Plan for (new or refurbished)	Method to determine the input capacity
Article 26(7), point (a)	Thermal electricity generation installation	Average annual total energy input is considered.   Measurement options: — Default option: divide total annual energy input (in MWh) by number of equivalent load hours over the year; — Divide daily production by the number of hours in a day; — Take peak production
Article 26(7), point (b)	Industrial installation	Average annual total energy input is considered.   Measurement options: — Default option: divide total annual energy input (in MWh) by number of equivalent load hours over the year; — Divide daily production by the number of hours in a day; — Take peak production
Article 26(7), point (c)	Service facility (e.g., wastewater treatment facilities and LNG facilities)	Average annual total energy input is considered.   Measurement options: — Default option: divide total annual energy input (in MWh) by number of equivalent load hours over the year; — Divide daily production by the number of hours in a day; — Take peak production
Article 26(7), point (d)	Data centre	Total rated energy input is considered (21).   Measurement point: At the handover point(s) of electricity supply.

Pursuant to Article 26(7) of Directive (EU) 2023/1791 Member States are to also to aim at removing barriers for the utilisation of waste heat and provide support for the uptake of waste heat where the installations are newly planned or refurbished. For this purpose, Member States are to first identify these barriers (which are likely to differ between Member States based on regulatory, environmental and technical context). Depending on the barriers, different solutions to overcome them will apply. Examples of EU-funded projects on the utilisation of waste heat that can be useful in this context are listed in Appendix F of this Annex.

3.5.2.   Key principles of the installation-level CBA and guidance by the Member States

Annex XI to Directive (EU) 2023/1791 sets out the principles for the installation-level CBA to provide information for the measures set out in Article 26(7) and (9) of Directive (EU) 2023/1791. Annex XI of Directive (EU) 2023/1791 sets out the scope of the assessment, which is limited to the planned installation (that is to say the heat source, including waste heat recovery) and any appropriate existing or potential heat or cooling demand points the installation could supply considering rational possibilities (for example, technical feasibility and distance). That is to be considered within a given geographical boundary, which in the Commission’s view, may be decided by local administrative units according to the guiding principles established by the Member State.

Both ‘existing and potential heat and cooling demand points that could be supplied’ are to be considered in the CBA. Clearly, potential H&C load points may still not exist at the time the installation is commissioned. The CBA and authorisation may therefore need to be made on the assumption that the installation is equipped to operate as cogeneration/waste heat recovery (rather than actually operating as such at the time of commissioning) and capable of supplying the potential heat and cooling loads once they exist. That is the case when, based on the comprehensive H&C assessment pursuant to Article 25(1) of Directive (EU) 2023/1791, there are clear perspectives for a heat and cooling load, that is to say the adoption of measures, policies or strategies, for example the creation of the DHC network or the missing equipment and the connection with the heat consumer(s) as part of a project or groups of projects the benefits of which exceeded the costs under country-level CBA conducted in accordance with Part III of Annex X to Directive (EU) 2023/1791.

Annex XI to Directive (EU) 2023/1791 sets out that the CBA ‘shall include an economic analysis covering a financial analysis reflecting actual cash flow transactions’. The financial analysis must reflect actual cash flows from investing in and operating individual installations. That is because the outcome of the financial analysis should be reflected in authorisation decisions impacting on the economic activity of the installations.

However, the installation-level analysis could be embedded in the context of a broader economic analysis performed by the operators of the installations. Annex XI requires Member States to set out guiding principles for the methodology, assumptions and time horizons for the economic analysis.

It is recommended that Member States adopt detailed guidance on the CBA to ensure consistent application of that requirement across sites. In addition to the criteria mentioned in Article 26(8) of Directive (EU) 2023/1791, it is recommended that the guidance establishes common assumptions on payback periods, required rates of return on investment, projected fuel and electricity prices, policy costs and support levels. Such assumptions should be used in the economic analysis unless the applicant can provide evidence to demonstrate that alternative assumptions are appropriate in the case of their installation. In accordance with the requirements of Annex XI to Directive (EU) 2023/1791, the assumptions should realistically reflect actual investment terms for projects.

3.5.3.   Methodology for the CBA

To comply with the requirements of Article 26(7) of Directive (EU) 2023/1791, it is recommended that Member States follow a five-step approach on how an installation-level CBA could be conducted. The proposed approach is set out in Appendix G of this Annex and is to a large extent based on the approach presented in the 2015 JRC report (22) on best practices and informal guidance on installation level CBA. Member States are encouraged to reflect the recommendations set out in Appendix G of this Annex in their national transposition measures.

3.5.4.   Exemptions from the Cost-Benefit Analysis for installations and notification on the exemptions

Article 26(8) of Directive (EU) 2023/1791 allows Member States to exempt certain installations from conducting a CBA under specific conditions. In addition, Member States can also define thresholds expressed in terms of the amount of available waste heat, the demand for heat or the distances between industrial installations and district heating networks which exempt individual installations from preparing a CBA. Where a Member State opts to exempt an installation from conducting a CBA, they must notify to the Commission the exemptions granted pursuant to Article 26(8) of Directive (EU) 2023/1791, unless they were already notified during the implementation of Directive 2012/27/EU and are published on the Commission’s website (23).

3.5.5.   Authorisation and equivalent permit procedures for installations

Article 26(9) of Directive (EU) 2023/1791 requires the results of the CBA to be taken into account in authorisation or permit criteria issued to the installations subject to the CBA.

Section E of the Guidance note on Directive 2012/27/EU dealt with authorisation and equivalent permit procedures for installations (24).

3.5.6.   Data collection on the Cost-Benefit Analyses

Article 26(12) of Directive (EU) 2023/1791 requires Member States to collect information on cost-benefit analyses, including information on heat parameters. Given the potential use of the heat, temperature is the most characteristic parameter of heat available for the secondary use.

4.   REPORTING REQUIREMENTS

Reporting on Article 26 of Directive (EU) 2023/1791 is not done in the framework of the National Energy and Climate Plans and National Energy and Climate Progress Reports.

Article 26 of Directive (EU) 2023/1791 contains several conditional notification requirements as follows:

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paragraph 3 requires Member States to notify Commission when they plan to use alternative method to define efficient district heating and cooling. For the period until 31 December 2025, referred to in Article 26(2), point (a), of Directive (EU) 2023/1791, reporting deadline was 11 January 2024. For the periods starting from the dates referred to in Article 26(2) points (b) to (e), of Directive (EU) 2023/1791 notification should be made at least 6 months before the beginning of the given period;

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paragraph 8 requires Member States to notify exemptions to perform cost-benefit analyses required by Article 26(7) of Directive (EU) 2023/1791. There is no deadline for notification, but the Commission is in view that this should be made at the same time with communication of the transposition measures;

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paragraph 10 requires Member States to submit a reasoned decision to the Commission regarding and exemption or exemptions granted to installations subject to cost-benefit analyses pursuant to Article 26(7) of Directive (EU) 2023/1791, within 3 months after granting the exemption or exemptions when applying authorisation or equivalent permit criteria;

—	paragraph 13 requires Member States to notify any refusal to recognise a guarantee of origin for electricity from high-efficiency cogeneration together with a due justification.

Article 26 of Directive (EU) 2023/1791 is closely linked with the reporting requirements arising from that Directive, in particular from the following articles:

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Article 25(1) of Directive (EU) 2023/1791 requires Member States to notify a comprehensive heating and cooling assessment as a part of its integrated National Energy and Climate Plan and its updates. In preparing and reporting such assessments, Member States may follow Commission Recommendation (EU) 2019/1659 (25);

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Article 35(3) of Directive (EU) 2023/1791 requires Member States to submit to the Commission before 30 April each year statistics on national electricity and heat production from high-efficiency and other cogeneration. That data is to be reported directly to Eurostat through the EDAMIS system (26) and relevant instructions and reporting templates are issued by Eurostat (27).