Heat networks take heating, cooling or hot water from a central source and deliver it to a variety of premises such as public buildings, shops, offices, hospitals, universities, and homes. They fall into two categories:
- Communal heat networks which supply heat, cooling or hot water to a number of premises and customers within a single building. This is the most common form of heat network in the UK.
- District heat networks which supply heat, cooling or hot water to more than one building. District heat networks can cover a large area and supply many buildings.
According to the Government there are over 477,000 households connected to a heat network, equal to more than 1.1 million people. Low carbon heating formed one of the focus areas of the Labour Party’s ‘Warm Homes Plan’. The Government believes heat networks have the potential to decarbonise the supply of heat in built up areas and are a key part of the Government’s net zero policy. In their Net Zero modelling, the Climate Change Committee showed that 18% of the UK’s heat supply will need to come from heat networks by 2050, an increase from the current figure of 3%.
The new consumer protection regime
As long ago as 2018 the then Government accepted the recommendation of the Competition & Markets Authority (CMA) that the heat network sector should be regulated. The regulatory framework for heat networks (Heat Networks Market Framework) was established by the Energy Act 2023 which provided powers to regulate the heat networks sector and appoint Ofgem as the regulator.
The principal objective of the proposed regulations is to protect heat network consumers, ensuring they receive a fair price, reliable supply of heat, and transparency of information. OFGEM will have the powers to mandate price transparency, impose price structures or cost allocation rules, investigate prices and collect data to develop a comparison methodology. OFGEM will expect customers to be provided with specific details about billing information, as well as greater transparency across the sector.
The latest consultations on protections for heat network consumers conducted by the Government and OFGEM have just closed. An “ambitious” timetable to provide consumers with protections as soon as possible has been unveiled. This starts from April 2025, with commencement of the Consumer Advocacy and Advice functions, carried out by Citizen’s Advice in England & Wales and Consumer Scotland in Scotland, and the Consumer Redress scheme to be run by the Energy Ombudsman. This will provide consumers with recourse and redress, advice and representation as soon as possible while providing an opportunity to gather information on consumer issues and inform Ofgem’s priorities, when they begin to regulate the sector, from January 2026.
Commencement of the regulatory regime from January 2026 also provides Ofgem the time necessary to develop and consult on authorisation conditions and to build and test the digital service necessary to register authorised networks. Existing heat networks will be deemed to be authorised from the outset of regulatory commencement in April 2025 and given until early 2027 to complete registration through Ofgem’s digital service. Most authorisation conditions will take effect from January 2026, while data provided during registration will allow Ofgem to carry out more complex regulatory activities in areas like pricing and standards of performance from January 2027.
Who will be caught under the new regime?
The regime will potentially apply to anyone currently involved in either a communal or a district heat network either as an operator of the network, or as the entity responsible for the supply of the heat, cooling, or hot water through the network. Each of these categories of entity is referred to as an ‘Operator‘ or a ‘Supplier‘, respectively, and a description of their activities is contained in the draft “The Heat Networks (Market Framework) (Great Britain) Regulations 2025” (Regulations) which were laid before Parliament last November.
‘Heat Network Operators’ and ‘Heat Suppliers’ will need to be authorised under the proposed new regime.
A heat network operator is defined in the Regulations as “a person …who controls the transfer on that network of thermal energy for the purposes of supplying heating, cooling or hot water.” The operator will be the heat network asset owner or will have significant control over network infrastructure with the ability to invest and direct repairs and maintenance to support its continued operation. This could be the developer of the network or the owner of the building that is supplied with heat from the network.
In the context of a district heat network serving residential buildings, the operator is typically an energy service company (ESCo) that will fulfil the role of ‘heat operator’ for the primary heating network (i.e. the part of the network from the energy centre to the residential building). The ESCo may well also be responsible for the secondary heating network inside the residential buildings and be the “heat operator” for the secondary heating network. However, if this is not the case, the building owner may have the role of “heat operator” for the secondary network. Where there is more than one heat operator for a heat network, OFGEM has proposed three options to avoid the potential problems posed by multiple operators, the simplest of which is for one entity to be nominated as “representative” of the particular heat network in front of Ofgem.
A heat network supplier is defined in the Regulations as the person engaged in the regulated activity of: “supplying heating, cooling or hot water to heat network consumers by means of a relevant heat network.” The supplier will have a contractual relationship with heat network consumers through a heat supply contract (or equivalent agreement) or a deemed contract, for the supply of heating, cooling or hot water to that consumer’s premises, and have control over the terms of that contract. However, a leaseholder will not become a supplier simply by virtue of being party to a tenancy agreement of premises connected to a heat network with a tenant that includes a supply of heat.
Depending on the set-up of the network the same entity could fulfil both roles, such as where a building owner has responsibility for the communal heat network within a building and responsibility for the supply of heat (and/or cooling or hot water) to individual tenants within the same building and it forms one of the services in the building.
Please note that it is intended that houses of multiple occupation and other single buildings that are not divided into separate premises, such as nursing homes or student accommodation, will not fall within the ambit of the regulation.
Key responsibilities for operators and suppliers
Operators:
- Meeting the technical requirements under the Heat Network Technical Assurance Scheme (HNTAS)
- Ensuring a reliable supply of heat and procurement of fuel/ thermal energy source.
- Putting arrangements in place with another entity for the continued operation of the heat network in case of failure or revocation of authorisation.
- Other responsibilities relating to compliance measures, decarbonisation, notifying Ofgem of any material changes and acting as a contractual step-in entity for the Supplier.
Suppliers:
- Having a contractual relationship with consumers, in the form of a heat supply contract or deemed contract (which could include a tenancy agreement, where heat is supplied under the same).
- Putting arrangements in place with the Operator for continued supply in the case of failure or revocation of authorisation.
- Other responsibilities relating to billing/pricing, customer service, complaints and supporting vulnerable customers.
Enforcement
The Regulations include a variety of enforcement powers that will be available to OFGEM including orders, investigations and imposing penalties. These have been based on the existing framework in gas and electricity, but OFGEM has also considered the diverse nature of the heat network market, while looking to ensure that poor conduct is addressed and providing a deterrent. To this end, OFGEM is considering introducing ‘fixed penalties’ as part of its approach to ensuring compliance where there are breaches of lower order “clear cut” regulatory requirements. OFGEM will consult further on the detail in an Enforcement Guidelines and Penalties policy.
Step In/Operator of Last Resort
Ofgem has proposed that heat network operators be required to have in place, on an ongoing basis, a contractual arrangement with an entity to continue the authorised activity, which could be triggered in the event there is an imminent risk of insolvency or revocation. However, to avoid regulatory duplication, Ofgem has proposed excluding registered social housing providers, where the legal entity is subject to the relevant social housing regulations, from a number of the regulatory requirements including financial monitoring information, the need for continuity plans, contractual step-in, last resort directions and other exit schemes. Further, as local authorities are unable to enter into insolvency, it is proposed that they should be excluded from these requirements. Ofgem is continuing to consider the practical and legal issues to provide for a Last Resort arrangement for heat networks and also how such an arrangement could be funded.
What should heat network operators and suppliers do now?
- Determine whether you are likely to be a heat network operator or supplier and if so get up-to-speed on the new regulatory framework that is being introduced
- Review existing contractual arrangements and assess whether they are fit for purpose
- Assess whether the heat network is in a condition which will meet the HNTAS