What to expect from upcoming regulation

Recognising the crucial contribution of heat networks towards reaching net zero, the Government is aiming for heat networks to supply 20% of UK heat demand by 2050, rising from today's figure of 3%. In response, government has developed regulations to introduce a Heat Network Market Framework that will put in place statutory regulation of the sector and identify heat network zones where a heat network will be the best means of delivering low carbon heat at scale to customers as part of the national transition for consumers away from fossil fuels. 

In 2023 the Energy Act set out the following: 

• Introducing of heat network zones across England and Wales (Scotland has its own policy and is not covered in the extent of this blog) 
• Powers for Ofgem to become the sector regulator and enforce new consumer protection regulations 
• Introduction of a technical assurance scheme for heat networks

This blog provides an overview on current progress and estimated timelines for implementation. 

We believe the only way to create long term success for heat networks is to place consumers at the forefront, and we remain committed to ensuring that our customers have reliable, fairly priced heating and hot water when they need it.

Authorisation for suppliers and licenced for operators

The Heat Network Market Framework regulations will introduce two regulated activities:

• Operating a relevant heat network. A licence will be required to develop and operate a heat network.
• Supplying heating, cooling or hot water to heat network consumers by means of a relevant heat network. Authorisation will be required to be a heat network supplier. This is the entity that has a heat supply agreement, or equivalent, with each consumer connected to the heat network. 

Ofgem will oversee and administer licensing and authorisation. 

Accelerating market maturity through zoning

 A Heat Network Market Framework will identify geographical areas where a heat network should provide the lowest carbon and lowest cost solution for heating and hot water. This is known as zoning.

Within these zones (within England and Wales), successful zone operators will be granted exclusive rights to design, construct, operate and maintain the city or town, overseen by an independent Zone Coordinator. It is expected that local authorities will take on this role or appoint a Zone Coordinator.

Zones will also offer measures to begin to provide demand assurance to heat network developers and operators  - a requirement to connect for certain classes of building including key anchor loads  as well as mandated waste heat offtake.  One of the functions of zoning will be to match heat demand, based on housing stock (new build and existing buildings) with the availability of heat. 

Government is also seeking to introduce legislation for heat networks to benefit from the same rights as other utilities including introducing wayleave rights, statutory undertaker rights, permitted development and compulsory purchase order rights. These rights, once implemented will start to establish a level playing field as between heat networks and other utilities.

Much of the detail on zoning and the market framework, whilst provided for by the Energy Act 2023, will rely on secondary legislation. This is under development and we are expecting to see progress across 2025, with implementation from 2026.

In the meantime, six Advanced Zoning Programmes are active, including regions such as Bristol and two areas within London. This programme grants greater flexibility in how zoning contracts are awarded, including consenting set out in local planning policy.

Setting technical standards for heat networks

In 2023, The Energy Act provided the powers for government to mandate heat network technical standards in Great Britain through new regulations.

Since then, the Department for Energy Security and Net Zero has worked to develop a technical standards code and certification process. This is called The Heat Network Technical Assurance Scheme (HNTAS).  A consultation on the standards is expected in Spring 2025 and we are working with regulators and our industry partners to seek that any standards are proportionate and fit for purpose.

Once in place, communal heating systems and district heating systems, for both new build and existing networks will be required to comply with the standards.

Prioritising consumer protection with new regulation

The Energy Act of 2023 also gave Ofgem, which regulates the gas and electricity markets, the rights to develop and enforce consumer protection regulations. Consumer protection regulation will be introduced in phases. The first element of consumer protection for heat network end customers will begin formally from spring 2025 when consumer advocacy bodies duties begin. For customers in Great Britian, Citizens Advice and the Energy Ombudsman will be available to support their claims, with Consumer Scotland supporting customers on heat networks in Scotland.

Full consumer protection will be implemented by 2027. Until then, Heat Trust, an independent body who provides customer protection to heat network customers will continue to ensure that consumers remain front and foremost in regulatory design and decision making.  Heat network operators can voluntarily register heat networks with Heat Trust. 

Delivering to technical requirements

At Vattenfall, we are experts in developing large, city-scale low carbon heat networks that are not only compliant with existing and future regulation, but aim to set the very best standards of delivery and service in the industry. 

We offer a unique end-to-end solution for decarbonising heating at scale, whether it is a local authority, real estate developer or housing association. Our expertise supports the development of holistic energy strategies, master planning, construction finance installation through to operations and maintenance for end customers. 

Whether it is developing a new heat network or adopting a legacy heat network asset, we remove the complexity and hassle of managing heating operations. Alongside an all-inclusive service for both you and your residents and tenants, we maintain and increase asset value with our future-proofed, low carbon technology. 

If you want more information about upcoming regulation or how we can support you, please get in touch.