24 March 2026
Industrial heat decarbonisation consultation and Specifications update for C&I heat pump water heating
Industrial heat decarbonisation – Public consultation open
The Department of Energy, Environment and Climate Action (the department) is proposing to add industrial heat decarbonisation activities to the Victorian Energy Upgrades (VEU) program. These activities are designed to incentivise upgrades for electric thermal energy storage, gas efficiency and biogas that can be tailored to the operating needs of businesses.
Public consultation opened on 24 March to provide feedback on the proposed activities.
The proposed changes to project-based activities will introduce new measurement methods for electric thermal energy storage (eTES), gas efficiency upgrades and behind-the-meter biogas.
These updates aim to give gas-reliant businesses more ways to decarbonise industrial heat through streamlining participation and unlocking additional VEEC incentives to support businesses to reduce their reliance on natural gas. Under current rules, long baselines, complex requirements and high administrative costs often make industrial‑heat upgrades difficult to pursue.
The proposed updates will reward businesses who take up electric thermal energy storage when combined with offsite renewable energy generation, appropriately recognise gas savings from process-level efficiency improvements while also making it easier for businesses to produce and use biogas onsite to replace gas, cut emissions and reduce energy costs.
If you would like to provide feedback, you can complete the survey or upload a written submission on the industrial heat decarbonisation consultation page.
An information webinar has been scheduled on 14 April to explain the changes. You can register for the webinar on the industrial heat decarbonisation consultation page.
The department will also offer targeted consultation sessions with key industry stakeholders. These sessions are designed to provide stakeholders the opportunity to provide detailed verbal feedback. Please send an email to the VEU team if you are interested in a session.
The consultation will be open until 11:59 pm Tuesday 28 April.
Commercial and Industrial Heat Pump Water Heater activity changes
On 24 March 2026, the department also released the VEU Specifications 2018, Version 22 (the Specifications) which introduces changes to the Commercial and Industrial (C&I) Heat Pump Water Heater (HPWH) activity (Part 44). These changes are effective from 31 March 2026.
The following changes have been made to the minimum product requirements of Part 44:
- The average heating capacity eligibility threshold, previously 20 kW, has been removed.
- For products below the 10 kW load factor threshold, the scaled incentive has been increased slightly based on total number of heat pumps in registered product.
- The minimum average tank volume has been reduced from 700L to 425L.
Other changes for Part 44 include:
- The minimum co-payment amount has increased from $1,000 to $10,000 incl. GST.
Please note, a proposed change to Part 44 that was outlined in the 6 February Response to Consultation will not come into effect. To support the electrification of commercial buildings and apartments, the department will no longer increase the load factor from 10 kW to 12 kW as previously proposed.
This will help ensure there are suitable and appropriate products available in the market and allow fit for purpose heat pump water heater installations for customers.
To demonstrate the impacts to registered products under Part 44, see the following examples:
- Product A consists of two insulated storage tanks with a combined volume of 850L and a total heating capacity of 20 kW – provided by two heat pumps. Product A will not be impacted by the change and is eligible for full incentives.
- Product B consists of two insulated storage tanks with a combined volume of 850L and a total heating capacity of 14 kW – provided by two heat pumps. Product B will be eligible for reduced incentives.
- Product C consists of two insulated storage tanks with a combined volume of 800L and a total heating capacity of 20 kW – provided by two heat pumps. Product C is not eligible for incentives.
These changes come into effect 31 March 2026. Products installed after this date that do not meet the requirements will not be eligible to create VEECs. Please review the VEU Specifications for all details.
These changes are focused primarily on adjusting the product eligibility thresholds brought in for Part 44 in July 2025, which were introduced to define ‘commercial and industrial-sized’ HPWH systems and to prevent domestic-sized HPWH units receiving higher incentives than appropriate for the facilities they were installed in.
During October to December 2025, the department conducted public consultation on the need for any further revisions to product eligibility for Part 44. The consultation included targeted stakeholder roundtables and a public industry survey released on the Engage Victoria website.
Through the consultation process, the department received 19 responses from a wide range of stakeholders including installers, accredited providers, product manufacturers and industry associations.
Stakeholders generally agreed that July 2025 changes were necessary to stop domestic-sized HPWHs from being installed in commercial buildings.
Some stakeholders expressed that the product eligibility limits were at risk of being too restrictive and may have been negatively impacting the market for C&I HPWH upgrades in commercial buildings.
The changes brought in with Specifications Version 22 recalibrates product eligibility limits to address some of the barriers that commercial buildings may encounter when looking to upgrade their commercial hot water systems through the VEU program.
The department received valuable input on more significant changes to Part 44 via the consultation process, beyond changes to product eligibility.
Consideration of these changes is expected to be included in the comprehensive review of all water heating activities in the VEU program, to be conducted over 2026. The department will provide further updates on the water heating activity review, including public consultation, in due course.
Page last updated: 24/03/26