Empowering municipalities to lower bills through efficient heating and cooling

The European Commission’s Action Plan for Affordable Energy emphasises the importance of energy efficiency measures in lowering consumers’ bills, while the call for evidence for the forthcoming Citizens Energy Package states that local actors should be supported in improving the accessibility and equity of such measures.

These detailed stocktakes and roadmaps for improving the energy efficiency of heating and cooling, including through electrification, expansion and upgrading of district heating and cooling networks, the deployment of more efficient technologies, and the use of renewable energy, will be prepared by local and regional authorities. This post provides an overview of the obligations and opportunities related to these plans and their potential implications for municipalities in improving energy affordability. The empowerment of local actors and the importance of integrated planning are cross-cutting themes of the Florence School of Regulation’s Sustainable and Smart Cities online community course.

What are the obligations of the Energy Efficiency Directive on heating and cooling planning?

The primary obligation for introducing integrated planning on heating and cooling is contained in Article 25 of the recast Energy Efficiency Directive (EED), which mandates planning at different levels of governance. At the Member State level, the recast Directive expands on the obligation to prepare a comprehensive assessment of the potential for the application of high-efficiency cogeneration and efficient district heating and cooling, which was present in Article 14 of the previous EED of 2012. The recast EED obliges Member States to submit a heating and cooling assessment to the European Commission which goes beyond cogeneration and district heating and cooling and instead covers all heating and cooling needs on their territory. The assessment must be guided by a cost-benefit analysis supporting ‘the identification of the most resource- and cost-efficient solutions to meeting heating and cooling needs, taking into account the energy efficiency first principle’. Member States are obliged to adopt policies and measures to realise the potential identified in their heating and cooling assessments. The recast EED also aligns the submission of the heating and cooling assessment with the process of preparing National Energy and Climate Plans (NECPs). The next major deadline in the NECP process is 1 January 2028, when Member States need to submit their draft NECPs for the period 2031-2040 to the European Commission.

This planning obligation, however, also has a strong local component. The recast EED requires that Member States ensure that municipalities with more than 45,000 inhabitants develop local heating and cooling plans based on the national heating and cooling assessment and cost-benefit analysis. The plans should assess and map the potential for increasing energy efficiency at the local level in considerable detail, including an analysis of the heating and cooling appliances and systems in the local building stock. They must include a strategy and trajectory for the achievement of the potentials identified in the plan.

What does it mean for municipalities?

The introduction of local heating and cooling plans creates an opportunity to identify, in particular, pathways for the efficient deployment, expansion, or decarbonisation of district heating and cooling solutions in municipalities. The granular detail in which these plans have to be drawn up, however, can also be a source of significant administrative burden in gathering the relevant data and producing the strategy, and in mobilising the necessary staff and resources. Regarding data availability, it should be noted that the Member State-level assessment is already an important source of data. In addition, local and regional authorities must be given access to relevant data gathered by Member States under a separate obligation of compiling national databases on the energy performance of buildings under the Energy Performance of Buildings Directive (EPBD).

Germany provides a recent, illustrative example of how local heat planning may be implemented by Member States: a Heat Planning Law entered into force in early 2024, obliging municipalities with a population of over 100,000 to submit heat plans by the end of June 2026 and those with fewer inhabitants by 30 June 2028. A competence centre established by the German Energy Agency provides support and guidance to communities following a nine-step process for local heat planning, which includes multiple opportunities for public consultation. While there is variation between Germany’s Federal States in the kind and level of support offered to municipalities in the local heating plans, the IEA’s 2025 Energy Policy Review of Germany considers the framework a ‘major accomplishment’ and a ‘positive step’ towards increasing energy efficiency.

This shows that the formulation of local heating and cooling plans can be a boon for efficient local decarbonisation, but that it also requires strong national support, given the administrative burden involved. The EED is clear that Member States must ‘support regional and local authorities to the utmost extent possible by any means’ in the implementation of their plans. Article 25(6) of the EED explicitly mentions financial and technical support, but does not go into further detail about what type of financial and technical support may be provided. Energy Cities, which tracks and scores the support of Member States for local heating and cooling plans, currently identifies only two Member States, the Netherlands and Denmark, as having put in place a highly-scoring framework (4/5). The Eurocities network has recently called for a stronger and more detailed commitment to national and EU support for local heating and cooling decarbonisation in the Commission’s Heating and Cooling Strategy, planned for publication in the first quarter of 2026 under Action 5 of the Action Plan for Affordable Energy.

What does it mean for affordability and vulnerable consumers?

There are substantial complementarities between increasing the efficiency of local heating and cooling supply and the affordability of energy. This is because replacing emissions-intensive heating systems with low-carbon solutions often creates considerable energy efficiency benefits, thus lowering bills. Local heating and cooling plans can in this way also contribute to the broader issue of housing affordability. A recent Bruegel analysis highlights that lower energy bills can reduce overall housing costs and thus the housing cost overburden rate, used by the Commission to measure housing affordability. The call for evidence on the forthcoming Affordable Housing Plan recognises this, listing a reduction of energy bills among the likely impacts of the initiative. Indeed, the  November 2025 recommendations by the Housing Advisory Board, which inform the drafting of the Affordable Housing Plan, mention the potential positive contribution of district heating and individual renewable heating and cooling solutions to housing affordability (Recommendation 40), emphasising, however, that the right conditions must be present for different solutions to achieve their maximum potential. For example, well-insulated homes significantly enhance the cost-savings achieved by heat pumps, while the benefits of deploying the most efficient and technologically advanced district heating solutions should be weighed against the significant financial and logistical challenges of undertaking the necessary system upgrades. Municipalities are often best placed to decide a way forward that reflects local circumstances and preferences, and local heating and cooling plans could be an important support in making these decisions.

It is also clear from the above that the implementation of local heating and cooling plans will need to go hand-in-hand with other energy efficiency measures and strategies as detailed in the EED, EPBD, and plans for phasing out natural gas in the recast Gas and Hydrogen Markets Directive. This is also true for financial support to the most vulnerable populations. The EED specifically provides that municipalities’ analysis of heating and cooling appliances must ‘address the worst-performing buildings and the needs of vulnerable households’, who often tend to inhabit these inefficient buildings, a fact that reduces the savings achieved through improvements to heating or cooling equipment. Targeted financial support for vulnerable households, as foreseen in the EPBD and subject to a recent Commission Guidance, will be necessary.

More broadly, it will also be important to engender citizen buy-in and to make the process of building renovation, including heating and cooling, accessible and convenient for local populations. The next instalment of this Topic of the Month will examine the important role of one-stop shops in this process.