Tariff Design and Heat Supply Contracts

The heat supply contract governs the long-term partnership between heat supplier and consumer over a typical duration of 15 to 25 years. The tariff structure comprises a one-time connection fee, a consumption-independent base rate (CHF/kW), and a consumption-dependent energy rate (cents/kWh) — a structure used by approximately 75% of Swiss district heating networks. Price adjustment clauses link tariff components to energy carrier and consumer price indices, ensuring that heat prices reflect actual cost developments even over decades.

The Heat Supply Contract

The heat supply contract sets out the key agreements between supplier and customer:

• Heat price — Tariff structure and price estimate over the contract duration
• Connection conditions — Technical and spatial requirements for the building connection
• Connection capacity — Maximum heat output provided in kW
• Security of supply — Guaranteed availability and redundancy concept
• Contract duration and termination — Minimum term, extension clauses, ordinary and extraordinary termination
• Funding opportunities — References to subsidy programs and their impact on the heat price

In practice, the contractual framework consists of four components: the actual heat supply contract, the General Terms and Conditions (GTC), the Technical Connection Requirements (TAV), and the tariff schedule. Together, these documents form the complete legal framework for heat supply.

General Terms and Conditions (GTC)

The GTC form the standardized contractual basis for a large number of consumers. They govern in particular:

• Definitions — Uniform terminology for the entire contractual framework
• Construction, operation, maintenance, and ownership — Responsibilities for the network, building connection line, and transfer station
• Heat supply and purchase obligation — Mutual obligations of supplier and customer
• Liability — Liability limitations and duties to mitigate damages
• Right of way, access, and usage rights — Rights of the supplier on the customer’s property
• Changes to connection capacity — Procedure for requested increases or reductions
• Change of ownership — Regulation of contract transfer upon property sale
• Contract modifications — Conditions and procedures for adjustments

Technical Connection Requirements (TAV)

The TAV define the minimum technical standard for all building installations in the network. Their purpose is to ensure the quality of the overall system and to prevent gross planning and execution errors on the customer side. The typical structure includes:

• Scope of application — Which installations and connection situations the TAV apply to
• Definitions — Technical terminology
• Technical fundamentals — Heat transfer medium, supply and return temperatures, operating pressures, nominal pressure rating
• Equipment requirements — Requirements for heat exchangers, combined valve (differential pressure/flow rate controller), and heat meter
• Secondary-side integration — Requirements for heating, ventilation, and domestic hot water preparation
• Operational requirements — Commissioning, maintenance, fault management

When developing the TAV, realistic requirements should be set — particularly regarding the maximum return temperature, the approach temperature of the heat exchanger, and the permissible pressure losses. At the same time: the TAV should not contain product specifications but rather define functional requirements that can be met independently of manufacturer.

Pricing and Tariff Structure

The tariff structure of a district heating network is typically divided into three to four price components:

One-Time Connection Fee

The connection fee is charged as a one-time amount (CHF) upon installation of the building connection. It covers the costs for constructing the building connection line and a proportional share of the transfer station costs. Payment is due upon completion and commissioning of the connection.

Annual Base Rate

The base rate is calculated in CHF per kW of subscribed connection capacity and is consumption-independent. It covers the fixed costs of the network — in particular capital costs (interest and amortization) and maintenance costs. Regardless of how much heat a customer consumes, they contribute their share of the infrastructure through the base rate.

Energy Rate

The energy rate is billed in cents per kWh of delivered heat and is consumption-dependent. It covers the variable costs — primarily fuel costs and auxiliary energy (pump electricity). The more heat a customer consumes, the higher this cost component becomes.

Metering Fee

Optionally, a metering fee may be charged, covering the costs for maintenance and periodic calibration of the heat meter.

Approximately 75% of tariff models in Switzerland use all three main components — connection fee, base rate, and energy rate. This three-part structure has proven to be fair and transparent, as it allocates both fixed and variable costs on a cost-causation basis.

Alternative Tariff Models

An innovative approach is return-temperature-dependent pricing. Here, not only the consumed energy (in kWh) is measured, but also the flow volume and the average return temperature $\bar{T}_{\text{RL}}$ of the customer are recorded.

This model creates a financial incentive for the customer to operate their building installation efficiently and to achieve the lowest possible return temperatures. A low return temperature means better cooling of the heat transfer medium, which benefits the entire network: lower flow rates, reduced pumping energy, and decreased network losses.

Operational economic analyses confirm that return-temperature-dependent tariffs present no disadvantage for the long-term operation of the network — on the contrary, they promote higher overall efficiency.

Price Adjustment Clause

Since heat supply contracts run for many years, automatic price adjustment mechanisms are indispensable. The price adjustment clause links the tariff components to published indices, so that prices are adjusted to reflect actual cost developments without renegotiation.

Typically, two index groups are incorporated:

• Energy carrier index — e.g., the wood price index or the gas price index, weighted according to the fuel mix of the generation plant
• Consumer price index (CPI) — Reflects general inflation and indirectly captures labor costs, material costs, and service costs

A typical price adjustment formula for the energy rate is:

$\text{Energy rate}_{\text{new}} = 0{.}8 \left(0{.}85 \cdot \frac{\text{Index Wood}_{\text{new}}}{\text{Index Wood}_{\text{old}}} + 0{.}15 \cdot \frac{\text{Index Gas}_{\text{new}}}{\text{Index Gas}_{\text{old}}}\right) + 0{.}2 \cdot \frac{\text{CPI}_{\text{new}}}{\text{CPI}_{\text{old}}}$

In this example, the energy rate is determined 80% by energy carrier costs (of which 85% wood and 15% gas) and 20% by general inflation. The weighting of energy carriers must be adjusted to match the actual fuel mix of the plant.

The price adjustment clause should be applied to both the base rate and the energy rate — albeit with different weightings, since the base rate depends more heavily on capital and personnel costs (CPI), while the energy rate is primarily driven by fuel costs.

Conclusion

A transparent and fair tariff design is the foundation for a successful, long-term partnership between heat supplier and consumer. The combination of a clearly structured heat supply contract, practical GTC, realistic TAV, and a comprehensible tariff structure creates trust and planning certainty for both parties. Price adjustment clauses with transparent index linkages ensure that heat prices reflect actual cost developments even over decades. Innovative tariff models such as return-temperature-dependent pricing can further increase the efficiency of the entire network and thus contribute to sustainable and economical heat supply.

Further reading: Economic Analysis According to VDI 2067 describes the methodology for determining heat generation costs as the basis for tariff calculation, Return Temperature Optimization explains the analysis and improvement of customer integration as the basis for return-temperature-dependent tariffs, and Planning Phases of Thermal Networks places the contractual design within the overall project workflow.

References and Standards

• AVBFernwärmeV — Ordinance on General Conditions for the Supply of District Heating