The new statutory framework for heat networks: regulation, consumer protection and market implications

The case for regulation

The UK Government has acknowledged that the heat network sector is fragmented. Heat networks in the UK are operated by many individual entities that are a mix of public, private and third-sector organisations, depending on the scale and ownership of the network. The networks themselves vary widely, from small systems serving a single block of flats to large district schemes supplying hospitals, universities and mixed-use areas. Heat networks across the UK’s diverse portfolio have faced similar recurring issues including unclear complaint routes, inconsistent service standards, metering issues and pricing structures that left consumers with little protection when things went wrong. In a 2018 market study, the Competition and Markets Authority (CMA) highlighted these concerns and called for statutory regulation.²

Heat networks are central to the UK’s decarbonisation strategy. They currently supply around 3 per cent of the UK’s heat, and the government wants that figure to hit 20 per cent by 2050.³ Achieving this depends on investor confidence, clear technical standards and a regulatory framework that can support long-term infrastructure. The Energy Act 2023 and the 2025 Regulations therefore aim to both protect consumers and create the foundations for future growth.

The legislative framework

The 2014 Regulations remain in force, requiring heat suppliers to install meters (where technically feasible and cost-effective), provide consumption-based billing, give comparative usage information and ensure billing clarity. The introduction of building classes introduced by the Heat Network (Metering and Billing) (Amendment) Regulations 2020⁴ (the 2020 Regulations) sharpened the metering obligations by linking them to technical feasibility and cost-effectiveness. However, neither the 2014 Regulations, nor the 2020 Regulations dealt with pricing, continuity, technical performance or financial resilience – gaps the new framework is designed to fill.

The Energy Act 2023 provides the statutory basis for the 2025 Regulations and confers broad powers on the Secretary of State⁵ and Ofgem (as the designated regulator of heat networks) relating to authorisation, consumer protection, continuity planning and technical standards.

The 2025 Regulations require all regulated entities (being heat suppliers, network operators, landlords and Energy Service Companies (ESCo) to hold authorisation to undertake regulated heat network activities. This requires regulated entities to meet certain authorisation conditions including registering via Ofgem’s digital service, and providing operational, technical, financial, and governance information. Networks with multiple operators must nominate a single point of contact for regulatory engagement to maintain clear communication pathways with Ofgem and to ensure accountability of the networks. Operators must also inform Ofgem of material operational changes such as supplying domestic consumers for the first time.

In addition, the 2025 Regulations impose a raft of consumer protection measures on regulated entities as a direct response to the deficiencies identified by the CMA in its market study. As with any form of utility, pricing and billing is of utmost concern to consumers. The 2025 Regulations mandate Ofgem to investigate pricing to ensure authorised heat networks are priced fairly and billed clearly, accurately and transparently. Consumer complaints will now have to follow a standardised process in which clear routes to access the Energy Ombudsman (a free and independent body that resolves energy disputes in the UK) are established. Regulated entities must also meet certain performance standards as a prerequisite to being authorised, with compensation payable should they fall below Ofgem’s Guaranteed Standards of Performance (GSOPs). For consumers identified as being ‘vulnerable’ (defined by Ofgem as those who, for reasons of age, health, disability, financial stress or other circumstances, may be in a position where they need additional support), regulated entities must operate a ‘priority services register’ and provide tailored support that includes strong safeguards around disconnection for non-payment of bills. Should a regulated entity find themselves in breach of these measures, Ofgem is empowered to impose fines of up to £1 million or 10 per cent of turnover, depending on the severity of the breach.

Operational arrangements and continuity

Regulated entities must ensure that their operational arrangements are structured in a way which enables a successor (including insolvency practitioners and administrators) to efficiently take over the heat network’s operations if required to do so. Practically, this means that any of a heat network’s material assets (such as heat generation plant, distribution networks and control systems) must remain available to whoever is authorised to carry on the relevant activity. This is an important safeguard with the objective being to guarantee continuity for consumers. Authorised entities must therefore have a ‘Material Asset Register’ in place, detailing plant, pipework and key operational assets, disposal of which will be restricted.

To further safeguard supply, regulated entities must have robust and compliant continuity plans in place by January 2027. These plans must set out interim supply options (in the event of a supplier exiting the market) and contingency measures for billing and metering (including those involving third-party agents) that meet Ofgem’s GSOPs. To provide an additional layer of consumer protection consideration is currently being given to whether trade bodies could maintain a targeted list of suppliers who would be willing and able to step in during a failure scenario. However, as it stands, Ofgem will not be mandating contractual step-in arrangements for all networks, opting instead for a softer approach of setting out guidance for good practice. For failing heat networks, the 2025 Regulations empower Ofgem to issue ‘Last Resort Directions’ directing another authorised supplier or operator to step in to maintain heat supply. For operators, particularly those managing older, communal systems, this represents a material shift in risk allocation.

Financial arrangements

Regulated entities must also maintain sufficient financial and operational resources to be able to deliver their regulated activities and obligations, and to manage their risks effectively. In practice, this means that regulated entities have a duty to ring-fence sinking funds to ensure that they are capable of meeting liabilities as they fall due, and to notify Ofgem if their resources become constrained or unavailable.⁶ These duties aim to mitigate the risk of sudden failures, ensure early intervention where risks do emerge and improve the long-term resilience of the sector, with the intention of improving investor and consumer confidence in heat networks.

Practical implications

The new regulatory structure will materially influence how developments are conceived, financed, procured and delivered. Regulated entities will need to consider Ofgem’s authorisation, continuity and technical standards much earlier in the project lifecycle. Historically, regulatory considerations were largely confined to metering and billing. Under the new regime, however, the establishment of the Heat Network Technical Assurance Scheme (HNTAS) will introduce mandatory performance requirements, monitoring obligations and technical failure criteria. Compliance with HNTAS will require investment in monitoring and optimisation for many networks, particularly older ones whose efficiency has deteriorated.⁷ In practice, the system architecture of heat networks must facilitate long-term operational resilience and transferability. This will be achieved through early-stage design assumptions (for example, operating temperature, energy centre configuration, pipe sizing, hydraulic separation) and anticipating potential need for interconnection into future heat network zones.

Following the roll-out of 28 pilot schemes, national heat network zoning (and the legislation that will govern them) is expected imminently. Developers delivering mixed-use or multi-phase sites in these zones will therefore need to plan for future connection obligations by considering how to scale or interconnect networks and the reservation of utility corridors for future distribution pipework. This will influence land negotiations, plot sequencing, and interfaces with highways and utilities, increasing the value of early engagement with local authorities who will hold key data on anticipated zones. Developers may also need to revise their standard ESCo procurement models so that risk allocation aligns with Ofgem’s expectations and avoids gaps between construction, commissioning and operation.

Regulated entities that are dependent on project finance to fund their heat network projects can expect the financial due diligence phase to be extended and enhanced which may influence the bankability of certain communal systems. Financial institutions providing debt and equity are likely to request evidence of compliance with the 2025 Regulations’ authorisation conditions to demonstrate that the project supports regulatory continuity duties. Banks and lenders will also require long-term financial resilience modelling (particularly around sinking funds and major maintenance reserves) and clarity on a project’s exposure to enforcement risk, including the ability to meet any financial penalties imposed by Ofgem for non-compliance.

The need to comply with continuity arrangements, HNTAS standards, resilience duties and more robust consumer protection will inevitably increase both capital expenditure and operational expenditure. Developers should expect, and therefore plan for, higher operations and maintenance contract costs, increased commissioning and optimisation requirements, mandatory monitoring technologies and data management systems, and potential requirements to upgrade legacy components in phased developments. Where viability is marginal, particularly in regeneration or affordable housing projects, these additional obligations may require renegotiation with local authorities or adjustments to masterplan density and phasing.

Market impacts

The new regulatory regime is expected to reshape the heat network market. Stronger consumer standards and continuity obligations may be challenging for smaller or older networks, increasing the likelihood of consolidation as larger, better-resourced providers step in. Without a statutory price cap, costs will remain sensitive to fuel prices and the investment needed to bring legacy systems up to standard. Consultation feedback on the 2025 Regulations indicated that concerns remain around price fairness and the interaction of financial resilience obligations with broader authorisation conditions. Further challenges are expected in relation to the limitations on local authorities’ capacity to implement zoning,⁸ the unresolved interactions between heat network regulation and leasehold law,⁹ and the pending implementation of GSOPs and HNTAS.¹⁰

In the medium term, though, clearer responsibilities and improved governance should help attract investment, and the expansion of low-carbon networks is being supported by the government’s establishment of two major grant funding schemes (the Green Heat Network Fund¹¹ and the Heat Network Efficiency Scheme¹²) to provide capital and revenue grants for new and under-performing networks.

Conclusion

The Energy Act 2023 and the 2025 Regulations represent a major evolution in the regulation of heat networks. While the reforms introduce much-needed statutory oversight, implementation will be complex, given the sector’s diversity, legacy technical challenges and reliance on local authority delivery mechanisms. Early compliance planning and sustained engagement with Ofgem’s guidance will be essential for operators, developers and landlords navigating this transitional period. The next two years are likely to be critical as Ofgem finalises guidance and the sector adapts to rising expectations around consumer protection, resilience and technical standards.

This article was originally published in Lawtext (Vol 25 Issue 2 edition) and can be read in full here.

1          Heat Network (Metering and Billing) Regulations 2014, SI 2014/3120.

2          Competition and Markets Authority Heat Networks Market Study (2018).

3         Department for Business, Energy and Industrial Strategy Heat and Buildings Strategy (CP 388, 2021).

4         Heat Network (Metering and Billing) (Amendment) Regulations 2020, SI 2020/1221.

5         Energy Act 2023, Part 8.

6         DESNZ and Ofgem Implementing Heat Network Consumer protections: Joint Consultation and Response (2024–25).

7         CIBSE and ADE Heat Networks Code of practice (CP1).

8         BEIS and DSIT Heat Network Zoning Pilot Programme: Evaluation Report (2023).

9         Landlord and Tenant Act 1985, sections 11, 18–20.

10         Ofgem Guaranteed Standards of Performance for Heat Networks: Consultation (2025).

11         DESNZ Green Heat Network Fund Guidance (2023–25).

12         DESNZ Heat Network Efficiency Scheme Guidance (2023–25).