UK's approach to heat networks set for change under new regulatory regime

Compliance with the new Heat Networks (Market Framework) (Great Britain) Regulations 2025 will be a major focus this year and beyond for operators or managers of heat networks as well as suppliers of heating, cooling or hot water through the networks.

Whether developing, managing, investing in or supplying properties connected with heat networks, the industry will be looking to stay on the right side of the regulator not least to avoid any potentially substantial penalties.

On 3 March and 1 April, some of the provisions of the new regulations took effect, with many more coming into force in January 2026. The regulations aim to protect consumer interests by ensuring reliable and affordable services while promoting sustainability and adherence to net-zero targets.

Ofgem regulation

Appointed as the regulator for heat networks, Ofgem has been empowered to monitor operators and suppliers, enforce compliance and issue authorisations with specific conditions. The energy regulator can also impose penalties for breaches, provide consumer redress and set performance standards.

The regulations establish criminal offences for unauthorised activities and non-compliance. They introduce requirements to provide detailed information and maintain records. Additionally, the regulations mandate membership in an Energy Ombudsman consumer redress scheme to handle complaints and ensure consumer protection.

An activity is regulated under the regulations if it involves broadly: the operation of a relevant heat network and control of the transfer of thermal energy on that network, or part of the network, for the purposes of supplying heating, cooling or hot water; or the supply of heating, cooling or hot water by a heat network. 

Heat networks

A heat network distributes heat or cooling from a central source to multiple buildings or units via insulated pipes. Unlike traditional methods where each building has its own boiler or heating system, heat networks use a centralised source to provide heating, cooling and hot water to residential, commercial and industrial buildings and units.

These networks can utilise various energy sources, including renewable options. By centralising heat production and distributing it efficiently, heat networks can reduce energy consumption, lower carbon emissions and offer cost-effective heating solutions. The UK government aims to expand the heat network sector to 20% of the overall heat market share by 2050.

Who is an 'operator'?

Under the regulations, a person "operates a relevant heat network if the person controls the transfer on that network of thermal energy for the purposes of supplying heating, cooling or hot water." In the event that multiple parties fall into this category and different persons are entitled to make decisions about modifying different parts of the network, each is taken to operate it but only in respect of the relevant part.

The government has suggested that parties that have significant control over heat network assets, the ability to invest in the network and make decisions on repairs and maintenance of the heat network will be more likely to fall into the category of an "operator". Further guidance is awaited from the government as to the identity of "operators".

Who is a 'supplier'?

Under the regulations, a "supplier" is a party that supplies "heating, cooling or hot water to heat network consumers by means of a relevant heat network."

The government has suggested that entities that have significant control over consumer outcomes, hold heat supply contracts with customers or have control over the terms of those contracts will be more likely to fall into the category of a "supplier". Further guidance is also awaited from the government as to the identity of "suppliers". 

Businesses may be asking: "Am I off the hook if I contract my responsibilities to another party?" The government's April 2024 consultation indicated that some functions of operation and supply may be subcontracted, such as through an operations and maintenance contractor or a billing and metering agent, but these situations generally do not constitute a delegation of regulatory responsibility.

The regulatory burden remains with the operator or supplier and so, even if another party carries out the required regulatory functions, any liability for non-compliance would still sit with the regulated entity. However, in some cases, long-term concession arrangements like the energy services companies (ESCo) model, where control of assets is contracted out, may be sufficient in shifting the regulatory burden.

Industry timeframes

Those already operating a heat network or supplying heat, or planning to, before 26 January 2027 will have automatically been authorised to carry on a heat network from 1 April. Registration with Ofgem via the heat networks digital service is required by 26 January 2027. Ofgem has indicated that registration will become live in the spring of 2026 but further guidance is awaited.

And for those thinking of operating a new heat network or supplying heat after 26 January 2027, an application will be needed to Ofgem for approval. Operating without authorisation is a criminal offence punishable by fines up to the higher of 10% of your annual turnover or £1 million.

Compliance checklist

• Register with the Energy Ombudsman as soon as possible. From 1 April 2025, heat network customers can complain to the Energy Ombudsman. Being registered will help to streamline this process.
• Adhere to existing good practices outlined by the Heat Trust.
• Take note of dates by which you need to apply for authorisation and stay alert for the launch of the digital registration service.
• Identify existing defects and inefficiencies in heat network infrastructure before the launch at some point this year of the Heat Network Technical Assurance Scheme that will set out minimum performance standards.
• Determine whether the business falls into the category of operator or supplier and get familiar with your obligations under the regulations;
• Familiarity with the scope of authorisation conditions or keep an eye out for any that are attached to the authorisation in the future under the powers conferred on Ofgem by the regulations. This could include conditions on the number of people authorised as operators of a single heat network, the terms on which premises are connected to a network, obligations to offer connection to certain premises, installation and maintenance of measurement and monitoring equipment, charges and billing, service standards, technical standards, continuity of supply, and provision of information to the regulator;
• Sign up to test Ofgem's new digital service before it launches (which will be later used for registration).
• Sign up for updates and opportunities to engage with Ofgem on heat networks.

Osborne Clarke comment

The regulations represent the start of significant change in the UK's approach to heat networks. They apply to a broad spectrum of the industry, potentially including developers and resident management companies in addition to traditional ESCos. In particular, entities that take a bulk supply from a third-party provider and pass on the supply to its tenants or residents will need to check their contractual arrangements and whether they are classified as a "supplier" under the regulations.

The "teeth" – that is, the size of the potential fines – of the regulations are substantial and hard to ignore. Further guidance is awaited on whether the 10% annual turnover could apply beyond specially incorporated companies or partnerships to include the wider group.

If you would like to discuss any aspect of the regulations and their impact, please contact one of our specialists in Osborne Clarke's Environment and Projects teams.

This Insight was drafted with the assistance of Mia Clothier, a trainee solicitor at Osborne Clarke.