District Heating Price Clauses Under the AVBFernwärmeV

District heating: the legal framework

District heating supplies a significant share of German households and many commercial buildings, and it is expected to grow significantly as municipalities implement heat plans. Unlike electricity and gas, district heating is not subject to network regulation by the Federal Network Agency. Customers are usually tied to a local supplier, often a municipal utility, and cannot easily switch. Consumer protection therefore relies on the Ordinance on General Conditions for the Supply of District Heating (Verordnung über Allgemeine Bedingungen für die Versorgung mit Fernwärme, AVBFernwärmeV), competition law and civil law review of contract terms.

The AVBFernwärmeV applies where suppliers use standard terms for connection and supply: §§ 2 to 34 then form part of the supply contract, unless the supplier uses deviating terms permitted by the ordinance (§ 1 AVBFernwärmeV). It does not apply to supply to industrial companies. The ordinance was last amended in 2022, strengthening transparency and customers' rights.

This article explains the requirements for district heating price clauses, transparency duties, the most important case law trends, contract terms and the decarbonisation obligations that will shape pricing in the coming years.

Requirements for price adjustment clauses

District heating contracts typically run for many years, so prices must be adjustable. The AVBFernwärmeV allows price adjustment clauses but sets strict limits. Under § 24(4) AVBFernwärmeV:

• price adjustment clauses must be designed so that they appropriately reflect both the cost development of generating and supplying the district heating by the company (cost element) and the respective conditions on the heating market (market element);
• they must state the relevant calculation factors completely and in a generally comprehensible form;
• when a clause is applied, the percentage share of the price factor covering fuel costs in each price change must be shown separately;
• a price adjustment clause may not be changed unilaterally by public notice.

The cost element must be linked to the fuels and costs actually relevant for the specific network. If a supplier converts its generation – for example from coal or gas to heat pumps, biomass or waste heat – but continues to use an index for the old fuel, the clause no longer reflects its costs. The market element must capture how heating prices develop more generally, so that customers who cannot switch still benefit from market developments. Courts have treated a market element that is too weakly weighted, or that merely duplicates the cost element, as insufficient.

Transparency and customer rights

Since 2022, suppliers must publish online, in an easily accessible and generally comprehensible form, their general supply conditions in the current version, including price rules, price adjustment clauses and price components, as well as clear references to the sources of the indices and price lists used (§ 1a AVBFernwärmeV). They must also publish information on network losses and further information about the network. This enables customers, consumer associations and competitors to check clauses and compare prices between networks.

Customers have further rights. They can adjust the contractually agreed heat capacity once a year with four weeks' notice to the end of a month without proof, as long as the reduction does not exceed 50% (§ 3(1) AVBFernwärmeV), and can reduce further or terminate if they switch to renewable heating. Supply contracts may run for at most ten years and, unless terminated with nine months' notice, are tacitly extended by five years at a time (§ 32(1) AVBFernwärmeV). Tenants who are contracting parties can terminate when their tenancy ends.

Case law and disputes

Price clauses in this sector have been the subject of extensive litigation. The Federal Court of Justice (BGH) has developed the requirements of § 24(4) AVBFernwärmeV in a series of decisions, holding that clauses which do not appropriately reflect both cost and market elements, or which are not sufficiently transparent, are invalid.

The prohibition on changing clauses unilaterally by public notice, now expressly stated in the ordinance, reflects this line of case law. Where a clause is invalid, the price may revert to the last effectively agreed price, and customers can claim repayment of amounts paid on the basis of invalid adjustments, subject to limitation periods and the specific circumstances of the contract.

After the price increases of 2022 and 2023, consumer associations brought collective actions against several suppliers, and individual customers challenged annual bills. Competition authorities have also examined district heating prices, because suppliers often have a local monopoly, and abuse of a dominant position can be pursued under competition law. Suppliers face the risk of large repayment claims; customers face uncertainty about the correct price. Both sides should document the basis of price changes carefully.

For suppliers, the litigation risk has practical consequences beyond individual cases. Repayment claims can affect many customers at once, especially where consumer associations bring representative actions on behalf of all affected customers. Suppliers should therefore assess their clauses proactively, consider whether to offer customers new contracts with compliant clauses, and account for potential repayment obligations in their financial planning. For customers, the first step is usually to request the calculation underlying a price change and to check whether the indices used correspond to the supplier's actual generation mix.

EU consumer law

District heating contracts with consumers are also subject to EU consumer law, including the Unfair Contract Terms Directive. Questions about the interaction between the AVBFernwärmeV – a regulation that itself sets the content of standard terms – and EU requirements on transparency and fairness can reach the Court of Justice through preliminary references, which our article on preliminary references explains.

Decarbonisation duties and future pricing

Heat networks must become climate-neutral. Under § 29(1) of the Heat Planning Act (WPG), the annual net heat generation of each heat network must come at least 30% from renewable energy, unavoidable waste heat or a combination from 1 January 2030, and at least 80% from 1 January 2040; extensions can be granted on application in specific cases. Network operators must prepare transformation plans setting out how they will reach these targets, and federal funding for efficient heat networks supports investment.

These investments will change cost structures: capital costs for heat pumps, geothermal plants, storage and network expansion will become more important, and fuel costs less so. Price adjustment clauses must reflect this shift, with suitable indices for electricity, investment goods and wages. Suppliers should plan clause updates in parallel with their transformation plans and communicate changes transparently, because a clause can only be changed by agreement, not by public notice. The reformed building energy law and municipal heat planning will increase the number of connections and the scrutiny of prices; see our articles on heat planning and the Building Energy Act reform.

Connection, capacity and network obligations

Beyond pricing, the AVBFernwärmeV governs the connection to the network, the customer's installation, metering, billing and interruptions of supply. Suppliers may require construction cost contributions and house connection costs, within the limits of the ordinance. Customers must allow access to metering equipment and maintain their installations in accordance with technical rules. Billing must follow the rules on consumption recording and billing information, which require regular consumption information and, increasingly, remote-readable meters.

In many municipalities, connection to and use of the heat network can be mandated by local statute for new development areas or for climate protection reasons, subject to exemptions. Such mandatory connection rules strengthen the supplier's position and increase the importance of fair pricing, because affected owners have no alternative. Municipalities considering such statutes should ensure that the network operator's prices and conditions are transparent and reasonable.

Price setting for new networks

New heat networks built as part of municipal heat planning face a pricing challenge: high upfront investment, uncertain connection rates and long payback periods. Suppliers must design price structures that cover investment costs while remaining competitive with heat pumps and other individual solutions, and price adjustment clauses that comply with § 24(4) from the outset. Funding programmes can reduce the investment burden, but they often come with conditions on pricing and transparency.

Heat supply contracting in rented housing

Where a landlord switches from in-house heating to supply by a third party – a heat supply contracting model – the costs can be passed on to tenants as operating costs only under the conditions of the Civil Code and the Heat Supply Ordinance, including a cost neutrality requirement compared with previous operating costs. These rules affect the economics of connecting existing rental buildings to district heating and must be considered in project planning.

District heating contracts for landlords and commercial customers

Landlords and housing companies are often the contracting parties and pass costs on to tenants as operating costs. Invalid price clauses and repayment claims therefore affect operating cost statements, and landlords may be obliged to pass repayments on to tenants. When connecting new buildings or switching existing ones to a heat network, landlords should review the supply conditions, capacity, term and price clauses, and consider the rules on switching to heat supply contracting in rented housing.

Commercial customers outside the scope of the AVBFernwärmeV – in particular industrial companies – can negotiate individual contracts. They should ensure that price formulas are transparent, linked to relevant cost drivers and include a market element or price cap, and that the contract provides for information rights and dispute resolution. Long-term industrial heat or steam supply contracts should also address the supplier's decarbonisation plans, because a change of generation technology can alter both costs and reliability of supply.

How TRW & Co helps with district heating

We advise heat network operators, municipal utilities, landlords, housing companies and commercial customers on district heating contracts and pricing. We review and redesign price adjustment clauses under § 24(4) AVBFernwärmeV, implement transparency duties, defend and pursue repayment claims, represent clients in collective actions and competition proceedings, and support transformation planning under the Heat Planning Act. Our work connects with our energy and utilities and collective actions practices. Please contact us. This article is general information and not legal advice.