“Heat on” date for Heat Networks Regulations – what operators and owners need to know

The end of January brings with it significant changes for the regulation of heat networks in the UK, with main provisions of The Heat Networks (Market Framework) (Great Britain) Regulations 2025 (the “Regulations”) coming into force today.

The Regulations are secondary legislation to the Energy Act 2023 and the Heat Networks (Scotland) Act 2021 (we wrote about this here).

Ofgem will also formally take on the role of the Regulator for the sub-sector.

Challenges and opportunities

District heating in the UK has experienced mixed success to date, with the relatively high cost of providing heat through district heating in comparison with conventional gas being a key reason for its limited adoption. Some existing networks have been plagued by inefficiency and high costs, leading to a reputation for poor service and, in some cases, large increases in energy bills for consumers. Others have performed well, offering a green and more cost-effective option to meet the UK government’s goal to replace gas than many heat pump solutions.

The industry has historically lacked strict regulation, resulting in inconsistent consumer protection. A customer will often have no viable alternative to their heat needs once committed to a heat network connection, severely limiting their options where the service levels and/or costs of the heating network prove to be unsatisfactory. Whilst new build sites are prime locations for new district heating to be established, we have advised a number of housing developers who have been cautious to commit their future purchasers to the potential downside of such schemes, conscious of the reputational impact that a poor experience may generate.

Following a series of consultations on the topic, the UK government’s next regulatory step forward for district heating has arrived.

Authorisation required

A major change that will apply from today (27 January 2026) is that it will be an offence to carry out a regulated activity (i.e. being an operator of, or a supplier utilising, a heat network) under the Regulations without a “heat network authorisation” from Ofgem as the Regulator.

Those who are already operating a heat network as of 26 January 2026, or who will commence the operation of a heat network within a year of that date, will benefit from a deemed authorisation. Certain information will need to be provided by operators in order to register with Ofgem by 26 January 2027 regardless of whether the operator is deemed to be authorised.

Maintaining that authorisation will depend upon the extent of the operator’s compliance with Ofgem’s monitoring requirements and wider standards. With a broad range of existing operators and approaches in the market, it is anticipated that Ofgem’s review, modification and re-authorisation process in relation to existing operators will be approached on a case-by-case basis over a few years.

Any new heat networks which commence operation after 26 January 2027 will be required to complete a full application for Ofgem approval prior to authorisation being granted. The authorisation itself will be given if the general conditions set out by Ofgem are met, although Ofgem also has the powers to apply specific conditions.

Consumer protection at the fore

Ofgem’s core conditions for authorisation have been consulted on and information can be found here. Acknowledging the challenges of moving from a largely unregulated, to a regulated sector and the diversity of the existing providers and approaches, Ofgem’s requirements focus on principles and driving better consumer outcomes, rather than trying to create an overly prescriptive set of rules.

These conditions include requirements centred on consumer protection, pricing and transparency, replicating and building upon the existing voluntary scheme standards promoted by the Heat Trust.  Cooperation with the Regulator, financial responsibility requirements and technical standards also feature, as does an obligation on the owner/operator of the heat network to have a suitable continuity plan in place.

Housing developer viewpoint

We have worked closely with developers to put in place robust structures and safeguards to resolve many of the earlier perceived risks.

For developers considering implementing a heat network into a new development, the coming into force of the Regulations will offer further confidence that a heat network operator meets certain minimum standards and that future homeowners who will have to sign up to supply agreements are appropriately protected, with recourse to Ofgem where issues arise. The new Regulations are also set to further strengthen investor confidence in financing the sub-sector.

The requirement of having a continuity plan in place will help to safeguard against supply ceasing through contractual step-in rights and asset transfers. Whilst this assists, the ultimate protection of ensuring that Ofgem can direct a “supplier of last resort” to take over from a failing provider, akin to the position with electricity networks, still remains to be clarified. The added complexity of having key physical assets held by the failing provider will be a challenge to address.

Positive progress

Overall, the full application of the Regulations is a welcome step to bring more certainty into the heat network market and provide reassurance to developers and homeowners alike. Given the “deemed authorisation” process, it might take some time for these improvements to reach the market and to enter into effect for operational schemes. Some details still remain to be provided on Ofgem’s role and the authorisation process and final decisions are underway in relation to the full set of heat networks authorisation conditions.

In the meantime, those carrying out a regulated activity in relation to heat networks should be aware of the changes that the Regulations bring by treating heat networks more like a public utility than contractual service. Once the Regulations are in force and further Ofgem guidance has been published, a clear standard of service across the sector and enforcement of penalties if a network operator fails to meet these standards will be in place.

Immediate actions

Operators/suppliers of heat networks should have prepared themselves for the “heat on” date of the Regulations by assessing the performance and standard of their heat networks, reviewing existing contracts and getting ready to put the required structures in place to comply with information sharing, transparency and requirements in relation to consumer protection. Deemed authorisation should be assumed to lead to an Ofgem review of each active network at some point, and implementing amendments to the existing arrangements which are reflective of the latest approved practice where possible would be prudent.

Developers who are currently involved in the early stages a development that includes a heat network should be mindful of the authorisation requirements for operators/suppliers of heat networks and, where contracts have been signed, be aware of any contractual implications such as changes in cost, termination rights and change in law provisions.

If you would like to discuss anything raised in this article, please get in touch with Chris Horsley or your usual Burness Paull contact.

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