Unlocking the future of low-carbon heating: Why heat network regulation is a game-changer

The UK’s transition to net zero is accelerating, and one of the most exciting developments on this journey is the upcoming regulation of heat networks. Heat networks offer a powerful solution to decarbonising heat, with the potential to deliver low-carbon energy, tackle fuel poverty, improve efficiency of systems, create skilled jobs and enhance energy security by reducing reliance on imported fossil fuels. With the Energy Act 2023 laying the groundwork, and Ofgem stepping into its role as the sector’s regulator, the heat network industry is on the cusp of a transformation that promises to deliver benefits for customers, communities, and investors alike.

 

A new era of opportunity

With heat networks expected to supply up to 20% of the UK’s heat demand by 2050, the investment potential is huge.

Historically, heat networks have operated in a largely unregulated space, which has created uncertainty for investors and left customers without the protections they enjoy in other energy markets. That’s about to change.

 

A new regulatory regime

The introduction of a robust regulatory framework will bring heat networks in line with other regulated utilities, like gas, electricity and water. This includes:

• Authorisation requirements for operators and suppliers – those operating a relevant heat network or supplying heating, cooling or hot water to heat network consumers by means of a relevant heat network will need to apply to Ofgem for authorization and comply with Ofgem’s Heat Network Authorisation Conditions.

• Fair pricing protections – authorised persons must ensure that charges are fair and are not disproportionate. Ofgem has published Guidance on fair pricing and cost allocation. This includes “fair pricing principles” including cost-reflective pricing, cost efficiency, price transparency and ensuring returns are fair and reasonable. Ofgem will not include a cap on tariffs, but does plan to develop benchmarking and profitability assessment tools.

• Deemed contracts - A new deemed contract framework protects customers receiving supply without a formal agreement. Customers who are supplied heating, cooling or hot water by an authorised person without a heat supply agreement in place are subject to a ‘deemed contract’ with the authorised person. This means, if a customer has not entered into a supply contract, the customer and supplier are protected by the terms of a deemed contract instead.

The deemed contract will be treated as incorporating certain express terms. Suppliers must implement and publish schemes setting the terms and conditions which are to be incorporated into its deemed contracts. Pricing must be no higher than their standard variable tariff. A scheme may make different provisions for different cases, classes or areas.

• Special Administration Regime – the purpose of the regime is to protect customers if a heat network becomes insolvent, and ensure networks continue running and customers’ supply is not interrupted. The court can appoint a “heat network administrator” to manage the heat network company’s affairs, business, property and exercise all other functions of that company, with a view to ensuring:
  • continued supply of heat, cooling or hot water at the lowest reasonable cost; and
  • the heat network continues to be maintained and developed as an efficient and economical system.

These objectives will be achieved by either (i) rescuing the company as a going concern; (ii) transferring the business to another company or multiple companies; or (iii) making arrangements for providing consumers with an alternative heating, cooling or hot water supply.

• Consumer advocacy and redress mechanisms - Authorised persons must join the Energy Ombudsman’s consumer redress scheme for supplies made to domestic consumers, micro-businesses and small businesses.

These measures will help safeguard consumers, helping ensure good customer service, improving reliability of energy supply, transparent, easy to understand energy bills and fair pricing. Improved customer confidence in heat networks is good news for investors to confidently back new heat network projects.

 

Timing

• 27 January 2026 - Ofgem officially becomes the regulator. Initial authorisation conditions and consumer protection rules take effect.
• Spring 2026: A digital service launches for network operators to begin registration.
• 26 January 2027: Deadline for all existing heat networks to register with Ofgem.
• After 26 January 2027: New networks must apply for authorisation before operating, and further, more detailed consumer protection standards are phased in.

 

What’s next? The arrival of heat network zoning

On 21 January 2026, the Department for Energy Security and Net Zero published the hotly anticipated response to its 2023 consultation on heat network zoning. We have also had sight of draft regulations on heat zoning, with market players asked to provide feedback to DESNZ by 23 March 2026. The draft regulations are expected to be laid before parliament later this year.

The government will designate geographic zones where heat networks are expected to be the lowest-cost, low-carbon heating solution.

Market players will be keen to understand:

• Consenting model – how developers are awarded zoning rights and the conditions of consent.
• Requirement for customers to connect – which buildings are required to connect to a heat network, by when, and any applicable exemptions.
• Requirement for heat sources to connect – this could include waste heat from data centers, industrial processes, energy from waste, wastewater and sewers. Key issues will include imposed contractual terms and relevant exemptions and rights to appeal.
• Incumbency rules – how existing heat networks will be treated.

We’ll be publishing further articles to explore the implications for developers, operators, landlords, and investors of heat network zoning. These will provide insights into compliance strategies, market opportunities, and how to prepare for the new regulatory landscape.

 

Conclusion

The regulation of heat networks marks a bold step forward in the UK’s energy transition. It promises to unlock investment, protect customers, and accelerate the deployment of low-carbon heating solutions. For investors and industry stakeholders, this is a gateway to growth and innovation.