Preparing for Regulation

Registration and related Authorisation Conditions

Ofgem has confirmed it’ll proceed* with 3 key authorisation conditions designed to underpin the regulatory framework:

• Registration of heat networks: From 27 January 2026, if you’re an entity that’s deemed authorised under the Heat Networks (Market Framework) Regulations 2025 (heat suppliers, network operators, landlords and Energy Service Companies (ESCOs)), you’ll be required to register your heat networks and provide key operational information;
• Single Point of Contact: Networks with multiple operators must nominate a single point of contact for regulatory engagement (the ‘Nominated Operator’), ensuring clear accountability and streamlined communication with Ofgem; and
• The Notification of Changes condition: you’ll be required to inform Ofgem of material operational changes such as supplying domestic consumers for the first time.

*Updated drafts of conditions 1 and 2 above are expected before their formal introduction in the new year. Ofgem intends to implement condition 3 at a later date, subject to the development of supporting digital services required for its implementation.

Operational arrangements and material assets

As an operator, you must ensure that your operational arrangements allow any successor – including an administrator – to efficiently take over operation of the heat network, if required. 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, ensuring continuity for consumers even in the event of insolvency or transfer.

The message is clear – restrictions on disposing of material assets will apply where such disposal would compromise service continuity. Additionally, a ‘Material Asset Register‘ must be in place by January 2027 to provide transparency and support continuity planning.

These conditions won’t apply to local authorities or registered providers of social housing, given their separate regulatory frameworks. Ofgem will also proceed with annual financial reporting requirements and will provide further guidance on material asset obligations and definitions in due course.

Continuity arrangements

The Continuity Arrangements condition, requiring operators to have robust and compliant continuity plans that safeguard supply, is set to proceed and you must have this in place by January 2027. Your plans must include provisions for interim supply if a supplier exits the market and contingency measures for metering and billing services, particularly where third parties are involved. Responsibility for continuity will now apply to all operators, including if you’re on a multi-operator network.

Guidance will be further developed to incorporate best practice recommendations, including technical detail and template continuity plans. Ofgem is also exploring whether trade bodies could maintain a targeted list of suppliers willing and able to step in during a failure scenario, providing an additional layer of consumer protection.

Availability of resources and financial responsibility

If you’re an authorised person, the regulations require you to act in a manner calculated to secure key objectives, including maintaining sufficient financial and operational resources to deliver regulated activities, meet your obligations and manage risks effectively.

As an operator, you also have a duty to be able to meet anticipated liabilities as they fall due, and to notify Ofgem if resources become constrained or unavailable. This principle is designed to prevent sudden failures and ensure early intervention where risks emerge.

Importantly, monies collected from consumers for maintenance or replacement – such as sinking funds – must be ring-fenced and used for their intended purpose. Ofgem will review whether additional protections are needed where heat charges are bundled.

Scope of financial resilience provisions

Ofgem confirmed that most financial resilience requirements won’t apply if you’re a registered provider of social housing (RP) or local authority (LA), reflecting their statutory obligations and lower insolvency risk. However, these provisions will apply if you’re a special purpose vehicle (SPV) or ESCO, even if linked to an RP or LA. Ofgem expects partners establishing SPVs to create robust and resilient entities that meet their legal obligations to tenants.

Community-led and not-for-profit networks will remain subject to these provisions due to potential consumer detriment if they fail. Self-supply and industrial networks will continue to be exempt, provided they do not supply domestic customers. Guidance will clarify definitions and confirm that exemptions only apply where domestic consumers are not affected. Ofgem also intends to explore interactions between leasehold legislation and material asset provisions to determine whether these should be addressed in authorisation conditions or guidance.

Risk of Failure and Sector Models

Respondents to the consultation broadly supported Ofgem’s analysis of risk and the diversity of models in the sector, but requested further clarity on how financial resilience conditions interact with other authorisation requirements and definitions across the framework. Some consumer advocates warn that current proposals don’t yet deliver adequate fairness or price protection, and further measures may be needed to avoid volatility and excessive costs being passed on to customers. Ofgem has committed to reflect this feedback in updated guidance.

Importantly, Ofgem has reiterated its decision not to mandate contractual step-in arrangements for all networks. Instead, guidance will set out expectations for good practice, recognising that approaches will vary depending on network structure and ownership. As Ofgem gathers data and intelligence, its risk analysis will remain under review. Guidance will be updated over time with stakeholder input, and further measures may be introduced if emerging risks require a regulatory response.

Key takeaways for authorised parties

To prepare for Ofgem’s authorisation regime, you should start to consider the following:

• Plan for financial resilience – Ensure sufficient liquidity and risk management measures. Ring-fence sinking funds for maintenance and replacement.
• Map and secure material assets – Prepare a Material Asset Register by January 2027 and review your contractual arrangements to support continuity.
• Develop robust continuity plans – Include interim supply provisions and metering/billing contingencies. Stress test your plans against insolvency and transfer scenarios.
• Prepare for registration and reporting – Gather operational data for Ofgem registration by January 2026 and, if you’re part of a multi-operator network, begin the process of selecting your nominated operator.
• Engage with guidance and best practice – Monitor Ofgem’s guidance updates and align with the emerging standards on risk management and continuity.

Heat network regulation: How we can help

Since our last article on heat networks, eight projects have been awarded a share of £68 million by the Green Heat Network Fund signalling the Government’s intent to make heat networks an essential part of its decarbonisation strategy. Ofgem’s latest consultation response cements this strategy by setting a clear direction for heat network regulation that prioritises financial resilience, operational readiness and continuity of supply. With authorisation conditions formalised and phased deadlines approaching, developers and operators have a defined roadmap to compliance in a sector that’s critical to the UK’s net zero ambitions.

Our Infrastructure and Energy specialists can provide advice and support to clients looking to connect to a heat network or better understand the new regulatory framework. Specifically, we can:

• Advise on the contractual arrangements required to connect to a heat network
• Help you understand, apply and stay up-to-date with, legal and regulatory developments
• Provide training on heat networks and related sector horizon-scanning
• Provide legal and practical advice and support in relation to heat networks, as well as related statutory consent and planning applications
• Provide commercially-focused, cross-disciplinary advice and transactional assistance in connection with infrastructure and energy developments and financings
• Help secure grant funding, including ‘green finance’, or other responsible investments to fund infrastructure and energy developments
• Provide risk management and effective dispute resolution strategies if/when any heat network or related issues do arise.

If you’d like to discuss how these changes might affect your organisation or project, contact James, Adam or any member of our Energy and Infrastructure team.