Anyone who wants to operate a closed system (in Dutch: gesloten systeem) can, since the entry into force of the Energy Act (Energiewet), no longer rely on a purely factual qualification: formal recognition by the ACM is required. Without that recognition, the system does not fall under the special regime for closed systems and the owner runs enforcement risks. The system is two-tiered: the ACM first recognises the system as a closed system, and only then, upon application, appoints an operator nominated by the owner. This interplay of recognition and appointment holds the legal key to the closed-system regime. We outlined the broader framework earlier in our overview article on private networks and closed systems.
The recognition criteria
The ACM only recognises a system if it meets an exhaustive set of conditions. The system must be located within a geographically confined industrial or commercial site, or a site with shared services. The business or production process must be technically, organisationally or functionally integrated with the system, or the system must primarily distribute to the owner and affiliated undertakings. Fewer than 1,000 parties may be connected to the system, and the system may not supply household end-users, save for incidental use by a small number of household end-users with a link to the owner. In addition, the ACM must consider the safety and reliability of the system to be sufficiently safeguarded, and for electricity a maximum voltage level of 220 kV applies. The applicant must, moreover, own the network or have lasting power of disposal over it.
These criteria call for a factually watertight file: a precise delineation of the system with a map of the system boundaries and the transfer point to the public grid, an overview of all connected parties and their function on the site, substantiation of the technical or functional integration, and documents demonstrating ownership of or power of disposal over the infrastructure. In practice, that last point deserves particular attention: ownership, registration and the factual delineation of a network do not automatically coincide with its operation, and discrepancies between the drawn boundaries and the actual situation on site are a recurring source of delay.
Procedure and time limits
The ACM handles the application in accordance with the General Administrative Law Act (Algemene wet bestuursrecht) and must, in principle, decide within six months of receipt; that period may be extended once by no more than six months. After submission there is usually a phase of questions and supplementary requests, during which the ACM may suspend the decision period for as long as the file is incomplete. The decision is published, and interested parties, including connected parties and the regional grid operator, may lodge an objection against it and subsequently appeal to the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven, CBb). A recognition process, including preparation, quickly takes several months to more than a year. Anyone developing a site or taking over a network is therefore well advised to factor this into their planning in good time. You can read more about how the ACM approaches and enforces licensing and recognition procedures in our article on ACM licences and enforcement for energy companies.
The position of connected parties after recognition
After recognition, the operator is not free to run the network purely under private law as it sees fit. On request, it must make an offer for connection and for transport, and may only refuse this where there is reasonably insufficient transport capacity, with sound substantiation. In addition, there are obligations regarding record-keeping and the provision of data, and for connected parties with a small connection there must be a transparent, simple and inexpensive complaints procedure.
Nuance is important for the legal position of connected parties. Parties connected to a closed system are not automatically treated on the same footing as customers on the public grid, and the Grid Code (Netcode) does not bind them directly in their relationship with the public grid operator. That does not mean, however, that they are without rights: the obligations that the closed-system operator has towards its connected parties continue to apply in full, and connected parties can file complaints and submit disputes to the ACM. This distinction matters for contract practice: precisely because public law does not regulate everything directly between the public grid operator and the connected party, connection, transport and use conditions within the closed system must be carefully laid down by contract. Caution is also warranted on tariffs: the ACM does not set tariffs for a closed-system owner, and not every tariff rule that applies to public grid operators therefore automatically applies to a closed system.
Amendment and withdrawal
Recognition is not a final destination. Changes in the factual situation can have consequences: expansion of the site, an increase in the number of connected parties, the arrival of household end-users, or transfer of the network to another party. In such cases the recognition must be amended or applied for anew; on transfer of the network, the recognition does not automatically pass with it. The ACM may, moreover, withdraw the recognition when the recognition criteria are no longer met, when the system is not managed by the appointed operator, when the operator acts in breach of its statutory obligations, or when incorrect or incomplete information was provided in the application that would have led to a different decision. Changes in ownership, system boundaries, number of connected parties or use are therefore not merely operational matters, but can affect the very basis for the recognition itself.
Pitfalls from practice
A number of pitfalls recur time and again. The first is operating without recognition, on the assumption that the case concerns an installation or a direct line; an incorrect qualification can lead to enforcement and to disputes with connected parties years later. The second is too narrow or too broad a delineation of the system, causing later expansions to fall outside the recognition or the network to include parts over which the applicant has no control. The third is treating ownership of and power of disposal over parts of the network too lightly. The fourth is underestimating the position of connected parties: they are interested parties in the recognition decision and can also file complaints or submit disputes to the ACM after it has been granted. The fifth is an insufficiently developed contractual framework for connection, transport, tariffs, capacity restrictions and complaints handling. For the way in which the ACM operates in such disputes, we refer to our article on the role of the ACM in energy-law disputes.
Conclusion
Recognition of a closed system is not an exemption counter for private networks, but a tightly regulated legal exception with its own admission criteria and ongoing management obligations. A well-prepared file, clean documentation of system boundaries and the ownership position, and a legally well-ordered relationship with connected parties reduce not only the risk of delay at the ACM, but also the risk of later disputes, enforcement and withdrawal. Are you preparing a recognition application, changing your site, or facing withdrawal or enforcement? Our energy-law lawyers guide recognition processes from application through to any proceedings before the CBb.
