Introduction – what is a Heat Network and why are they so important?
A heat network is a system where heat for either a building, a series of buildings or a wider community is produced centrally and then transported to end users through a network of pipes. A heat network may be used by commercial or domestic premises or a combination of both and the heat is transferred to the end-user property by means of a ‘heat exchanger’ or ‘heat interface unit’.
Heat networks include both communal heating systems (where the heating is supplied to a single building) and district heating systems (to two or more buildings). They are seen as beneficial on the basis that they are capable of being powered through low carbon means i.e. heat pumps, biomass, sewers, data centres etc. They can also generate savings for end-users as the heat supplied is often cheaper than gas boilers (although note that there may be an initial up-front connection cost).
Heat used in buildings needs to be decarbonised in order for the UK to meet its net zero obligations under the Climate Change Act 2008 and the UN FCCC Paris Agreement with an estimate from the Climate Change Committee that 18% of UK heat will need to come from heat networks by 2050.
Given the closed market nature of a heat network, heat pricing is likely to require regulation to protect consumers. This issue is only heightened by the fact that heat networks often serve consumers in fuel poverty as they are often built as part of urban regeneration schemes and connected to affordable housing. In much the same way as gas and electricity supply is regulated, so will heat networks be regulated. Some regulatory provision is in force already, more will come into force this year, and likely as not with more to follow along with clearer articulation (in the form of further guidance and licencing/authorisation regimes). This report examines the basis of the regulation of the heat network with some commentary upon what we might expect in the coming months how we might take steps now to prepare for forthcoming regulation.
Regulation of heat networks - background
The Energy Act 2023 marked a decisive shift in heat network regulation: until its introduction heat networks occupied an usual position in the energy landscape: critical to decarbonisation and the UK’s net zero obligation but largely outside the scope of formal regulation. With the introduction of the Energy Act we saw the foundations of statutory regulation of heat networks laid out:-
- Appointment of Ofgem as the heat networks regulator (section 217)
- Establishment of an authorisation regime for regulating organisations that supply heat through a heat network or operate a heat network (section 218 and Schedule 18)
- Provision for the introduction of authorisation conditions and other regulations set by the government and Ofgem which will include provisions for fair pricing and transparency of information for consumers, quality of service standards and carbon limits.
- Allows for the creation of regulations that will give Ofgem powers to monitor compliance and take enforcement action, investigate and intervene where pricing appears disproportionate, introduce other regulatory tools such as price capping, introduce a licencing regime. Set rules regarding transparency of information and appointment of an Energy Ombudsmen.
- For consumers, the Energy Act is transformative. It enables the introduction of mandatory protections that mirror, where appropriate, those available in gas and electricity markets. These include clear a billing, improved standards of service, access to redress, and safeguards against unfair pricing practises. Crucially, this moves the sector away from reliance on voluntary schemes and towards consistent, enforceable standards.
The Energy Act represents a turning point. It embeds heat networks within the UK's core energy governance structures underlines their growth with wider objectives on Net Zero.
The Heat Networks (Market Framework) (Great Britain) Regulations 2025 (the “Regulations”) implements the powers and regulatory framework set out in the Energy Act 2023. They represent the first comprehensive statutory regime for regulating heat networks (both district and communal), implementing powers created under the Energy Act, with the intention of supporting a functioning market that protects consumers and creates a clear regulatory structure for operators and suppliers. In summary:
- The Regulations came into effect 3 March 2025, with some provisions coming into force on the 1April 2025 and others taking effect from the 27 January 2026 (including Ofgem assuming the role of heat network regulator).
- They define what constitutes a regulated activity (operating or supplying heat on a network).
- Set out a regime under which heat networks must be authorised to operate.
- Give Ofgem powers to oversee compliance, monitor performance and enforce regulatory requirements.
However, it should be noted that DESNZ and Ofgem are expected continue to publish consultations seeking views and updates on consumer protection requirements including the scope of regulation, how protections will work for non-domestic consumers and SMEs, overarch standards of conduct and heat network operation, obligations for fair pricing, protecting vulnerable consumers and step in proposals etc.
Regulation of Heat Networks – what’s here now and what to expect
Since 1 April 2025, it has been unlawful to conduct regulated activities i.e. to operate or supply heat from a heat network, without authorisation. However, for the period up to January 2027, existing heat network operators and suppliers will be deemed to be authorised under the Regulations. Note that the Government will have the power to extend this deadline.
To maintain authorisation, suppliers and operators will have to submit certain information to Ofgem by 26 January 2027.
Whether your organisation will have to comply with the Regulations will depend greatly on whether you fall into the category of operating a relevant heat network or supplying services by means of a relevant heat network. Where your organisation chooses to partner with another organisation in the operation or delivery of a relevant heat network then decision making about modifications to the network can determine whether you are considered an Operator and of which elements of the network. Obligations in relation to supply (the relationship with consumers) will also be relevant. Note that whilst regulatory obligations may be delegated the responsibility and accountability for non-compliance remains with you as operator/supplier.
Requirements for “Deemed Authorisation” of a regulated activity
A regulated activity cannot be carried out without specific authorisation (Reg 14 – in force now) unless there is a deemed heat network authorisation in place (Regulation 27 – now in force). In relation to a deemed heat network authorisation, consideration will need to be taken of the timing of commencement or planned commencement of regulated activities as this will determine whether an application needs to be made for authorisation or whether a deemed authorisation will be in place. At present the cut-off date for deemed authorisation to apply is 26 January 2027. (Note this date can be subject to change by the Regulator with the permission of the Secretary of State).
This registration process appears that it will be available from Spring 2026. You can register now with Ofgem Join our Heat Network Supplier scheme | Energy Supplier Portal
Operating without authorisation is a criminal offence punishable by fines up to the higher of £1 million or 10% of your annual turnover.
Regulation “Go Live” Date – 26 January 2026
From this date statutory regulations “goes live" and the authorisation regime is fully effective. Ofgem’s enforcement powers become active and core consumer protections are engaged.
From this date, operators must ensure that they are operating under an appropriate authorization (initially deemed, then registered) and operating without authorization becomes unlawful. Additionally, Ofgem will collate required network and operator information via their digital service and this exercise will be completed by January 2027, with a view to enabling regulatory oversight and compliance monitoring and formalising the registration process.
In terms of consumer protections, Ofgem will be able to review heat supply contracts, terms and consumer communications to ensure clarity and transparency and note that consumer protection becomes statutory and not voluntary. Billing practises must be transparent and accurate and compliant with any future Ofgem conditions.
Beyond January 2026
Parts of the regulatory framework continue to be phased in and aligned with broader heat policy. We expect pricing rules and performance standards to be phased in as Ofgem finalises consultations and the outcomes of secondary regulations are completed.
The Government continues to roll out the Heat Network Technical Assurance Scheme (HNTAS) – a set of minimum technical requirements that operators will need to meet and demonstrate compliance with. Draft technical specifications are being published for consultation and refinement.
Ofgem continue to actively consult on enforcement guidelines and penalty policies tailored to heat network regulation, including how final financial penalties will be applied, reflecting the fact that enforcement tools are being tailored to this new and evolving market.
It is understood that Ofgem intends to consult and bring in further conditions over time including guaranteed standards of performance to ensure that networks remit will meet reliable service expectations in much the same way as energy and gas sectors.
