Anyone distributing electricity through their own network on an industrial estate, port area, campus or business park must first answer one key legal question: what exactly is this network? In practice, people quickly refer to a private network, but legally that term means little. What is decisive is whether it concerns a closed distribution system, a direct line or merely an installation. It is precisely that classification that determines which statutory regime applies, which obligations apply towards connected parties and how much room there is to operate the system privately.
Under the Energy Act (Energiewet), the closed distribution system, or CDS for short, remains an important instrument for closed energy infrastructure. At the same time, a CDS is not an unregulated internal network. It is a legally recognised distribution system within a defined location, to which a special regime applies. That regime offers flexibility compared to regular grid management, but only within clear limits. For operators of private networks it is therefore essential to keep the distinction between a CDS, a direct line and an installation clearly in mind.
What is a CDS under the Energy Act?
A CDS is essentially a distribution system within a geographically defined industrial, commercial or otherwise functionally connected location, used to distribute electricity to a limited group of users. Think of an industrial cluster, port area, logistics site or multi-tenant campus with its own internal energy infrastructure. The defining feature is that the system is not intended for public distribution to an indeterminate group of customers, but for use within a closed site or organisational structure.
The rationale behind this regime is practical. At many of these locations, the users are technically, operationally or economically intertwined. The energy infrastructure then forms part of a broader site organisation, in which it does not fit well to apply the full public grid management regime one to one. The Energy Act therefore leaves room for a separate framework for this type of closed system.
That does not mean, however, that every internal network is automatically a CDS. The classification does not depend on the name the parties give to their infrastructure, but on the actual configuration of the system, the function of the network, the nature of the location and the group of connected parties. A network only qualifies as a CDS if it legally and factually meets the statutory characteristics of a closed distribution system.
A CDS is not the same as a private network
In practice, the term “private network” is often used for all energy infrastructure that is not owned by a public grid operator. As a working term that is understandable, but legally the concept is too broad. A private network can be a CDS, but also a direct line or an installation. Without further classification, the term therefore says little about the applicable legal framework.
That is precisely where things often go wrong in practice. A site operator regards its own network as an internal company network, while legally it may be a distribution system to which specific energy rules apply. Conversely, systems are sometimes positioned as a CDS too quickly, while the actual set-up does not match that well. In both cases risks arise: in supervision, in contracts with users or when expanding and restructuring the site.
For a legally sustainable arrangement, what is decisive is therefore not the commercial or technical name of the network, but the question of what function the system serves and how the network is actually used.
CDS, direct line and installation: the right delineation
The distinction between a CDS, a direct line and an installation is fundamental.
A CDS is a closed distribution system within a defined location, on which multiple users may rely for their electricity supply. The operator then effectively manages an internal distribution network with its own legal position within energy law.
A direct line has a different function. It involves a direct connection between a production installation and one or more customers. The emphasis is then not on distribution within a site, but on the direct link between generation and consumption.
An installation stands alongside that again. It does not involve a distribution system for several separate connected parties, but the own electrical installation of one party behind one connection. In that case, precisely the network character that is needed to enter the domain of a CDS or distribution systems is absent.
This delineation is often decisive in practice. Not only for the question of which statutory regime applies, but also for the way in which ownership, use, tariffs, expansions and liabilities must be arranged contractually.
Why the classification is so important legally
The question of whether a system qualifies as a CDS is not an academic preliminary issue. The classification determines the legal architecture of the entire site. It touches, among other things, on the position of the operator, the rights of connected parties, the possibilities for new entrants, the relationship with the public grid operator and the room for customisation in contracts and conditions.
Without the correct classification, friction almost always arises. An operator who assumes that it merely manages an internal network may be confronted with obligations towards users that it had not factored in. Connected parties, in turn, may believe they are entitled to access, transport or transparent conditions, while the operator reasons primarily from ownership and site management. The result is often a discussion about the legal status of the network, even before tariffs, capacity or connection requests can be addressed substantively.
That is why the analysis must always begin with the structure of the system itself: where is the network located, who is connected, what function does the network serve and how does the system relate to the rest of the electricity system? Only then can an operating model be designed in a legally sound manner.
Obligations of the CDS operator
A CDS falls under a lighter regime than a public distribution grid, but that does not mean the operator has free rein. Even within a CDS, obligations remain towards connected parties and, depending on the situation, towards parties wishing to gain access to the system.
In practice, this mainly revolves around careful handling of connection and transport requests, objective and transparent conditions and a tariff structure that is explainable and defensible. That requires more than just technical operation of cables and installations. A CDS operator must also organise its position properly in legal terms: in contracts, in site regulations, in the allocation of costs and in the way different users are treated.
This is all the more important because at many locations the energy infrastructure forms part of broader commercial and spatial arrangements. Whoever owns the site is not automatically free to operate the energy infrastructure entirely at its own discretion. As soon as a CDS is involved, the operation acquires a public-law dimension that works through into the private relationships on the site.
The significance of the Energy Act for existing and new site networks
With the Energy Act, the statutory foundation under closed energy infrastructure changes. The core of the CDS concept remains recognisable, but the system is modernised and embedded in a new statutory framework. For practice, this is mainly relevant because existing structures must be reviewed again.
Operators of existing private networks cannot simply assume that their current arrangement fits unchanged within the new framework. This applies not only to the technical configuration of the system, but also to the delineation of the network, the composition of the user group, the contractual structure and the relationship with the public grid. Where things have often grown pragmatically in the past, the Energy Act calls for a sharper legal underpinning of the chosen structure.
The same applies to new projects. Anyone developing energy infrastructure for a business park, campus or cluster today would be wise to classify the system legally from the drawing board onwards. Repairing afterwards is usually more expensive and legally more complex than structuring in advance.
The relationship with the public grid
A CDS does not operate in a vacuum. A closed system, too, is connected to the broader electricity system and thereby to the public grid operator. It is precisely at that interface that many questions arise in practice. Think of transport capacity at the transfer point, congestion, expansion of connection capacity, feed-in from decentralised generation and responsibilities when reinforcing the infrastructure.
For operators it is therefore not sufficient to look only at the internal structure of the site. Equally important is how the CDS relates to the surrounding grid. A legally sustainable and practically workable set-up requires alignment between the internal rights of users and the external constraints of the public system. Particularly in a time of grid congestion, this is not a side issue but a core part of the operation.
Where do disputes arise in practice?
Most disputes concerning private networks and CDSs can be traced back to four recurring themes.
First, there is the classification question: is it a CDS, a direct line or an installation? As long as there is uncertainty about that, the other rights and obligations also remain diffuse.
Second, discussions regularly arise about access and connection. New users on a site want access to the existing energy infrastructure, while the operator believes that the system is not set up for that or that admission leads to undesirable costs or restrictions.
Third, there are tariff and conditions issues. As soon as several users depend on one internal network, discussion almost inevitably arises about cost allocation, transparency and the question of the extent to which the operator may take its own commercial interests into account.
Finally, disputes arise upon transformation of the site: sale, redevelopment, expansion, carve-outs, changes of users or transfer of infrastructure. It is precisely at those moments that it becomes clear whether the network is legally robustly structured or has mainly grown pragmatically.
Practical lesson for the market
For the market, the most important lesson is that the term “private network” is insufficient as a starting point. The relevant question is always whether the actual structure of the system fits within the regime of the CDS or whether something else applies legally. That analysis should not be made only once a dispute arises, but already when setting up the site, connecting users and recording contractual relationships.
This applies in particular under the Energy Act. It makes even clearer that closed energy infrastructure can only be operated sustainably if technology, contracts and legal classification align. A network that functions technically excellently, but is legally improperly arranged, remains vulnerable to supervision, conflicts with connected parties and problems with expansion or transfer.
Conclusion
Under the Energy Act, the closed distribution system is the central legal framework for closed electricity networks at industrial and commercial locations. A CDS is not an informal internal network, but a specifically regulated distribution system within a defined environment, with a limited group of users and its own place within energy law.
For operators of private networks, the core therefore always lies in the classification of the system. Only once it is established whether it is a CDS, a direct line or an installation can operation, contracts, tariffs and access be given shape responsibly. Anyone working with their own energy infrastructure under the Energy Act would be wise to make that analysis in good time and carefully. That not only prevents legal risks, but also creates the basis for a stable and future-proof arrangement of the site.
Do you have questions about the classification of a private network, the arrangement of a closed distribution system or the consequences of the Energy Act for your site or cluster? The energy law specialists at Law & More regularly advise on the structuring, operation and disputes surrounding closed energy infrastructure.
Frequently asked questions about private networks and closed distribution systems
What is a closed distribution system (CDS)?
A CDS is a distribution system within a geographically defined industrial, commercial or functionally connected location, used to distribute electricity to a limited group of users. Think of an industrial cluster, port area or multi-tenant campus with its own internal energy infrastructure. The system is not intended for public distribution, but for use within a closed site or organisational structure.
Is a private network the same as a CDS?
No. The term “private network” is used in practice for all energy infrastructure that is not owned by a public grid operator, but legally that term is too broad. A private network can be a CDS, but also a direct line or an installation. Without further classification, the term says nothing about the applicable legal framework.
What is the difference between a CDS, a direct line and an installation?
A CDS is a closed distribution system on which multiple users rely for their electricity supply. A direct line is a direct connection between a production installation and one or more customers, with the emphasis on the link between generation and consumption. An installation is the own electrical installation of one party behind one connection, without the network character needed to qualify as a CDS or distribution system.
Does a CDS operator have obligations towards users?
Yes. A CDS falls under a lighter regime than a public distribution grid, but the operator still has obligations. In practice, this involves careful handling of connection and transport requests, objective and transparent conditions and a tariff structure that is explainable and defensible. As soon as a CDS is involved, the operation also acquires a public-law dimension that works through into the private relationships on the site.
Can the owner of a site operate the energy infrastructure entirely at its own discretion?
Not automatically. Ownership of a site does not give unlimited freedom regarding the energy infrastructure. As soon as the network qualifies as a CDS, specific energy-law rules apply. Those rules touch on the rights of connected parties, the possibilities for new entrants and the relationship with the public grid operator.
What has the Energy Act changed for existing private networks?
The Energy Act modernises the statutory foundation under closed energy infrastructure. Operators of existing private networks cannot simply assume that their current arrangement fits unchanged within the new framework. This applies to the technical configuration, the delineation of the network, the user group, the contractual structure and the relationship with the public grid. The act calls for a sharper legal underpinning of the chosen structure.
How does a CDS relate to the public electricity grid?
A CDS does not operate in isolation. The system is connected to the broader electricity system and thereby to the public grid operator. At that interface, questions arise about, among other things, transport capacity, congestion, expansion of connection capacity and feed-in from decentralised generation. A legally sustainable set-up requires alignment between the internal rights of users and the external constraints of the public system.
What do most disputes concerning private networks arise about?
Most disputes can be traced back to four themes: the classification question (is it a CDS, direct line or installation?), discussions about access and connection of new users, tariff and conditions issues regarding cost allocation and transparency, and conflicts upon transformation of the site such as sale, redevelopment or transfer of infrastructure.
When should the legal classification of a network be made?
As early as possible, preferably already when setting up the site. Repairing afterwards is usually more expensive and legally more complex than structuring in advance. Anyone developing energy infrastructure for a business park, campus or cluster today would be wise to classify the system legally from the drawing board onwards.
