Green Energy Group Update: Understanding the New Heat Network Regulations

Overview of the New Regulations

Ofgem is set to commence regulation of heat network operators and suppliers across Great Britain from 27 January 2026. This regulatory framework is established through primary legislation, specifically the Energy Act 2023 for England and Wales, and the Heat Networks (Scotland) Act 2021 in Scotland. Statutory instruments passed under these acts have formally appointed Ofgem to serve as the regulator for heat networks.

The key aims of heat regulation are to protect customers, improve technical standards, boost investor confidence and decarbonise the sector.

Who Will Be Regulated?

The regulations categorise operating or supplying a heat network as a regulated activity, meaning all suppliers or operators will fall under this new regime. Typically, those affected will fall into two main categories:

• Energy Service Companies (ESCOs): private companies appointed to manage a heat network that contract directly with customers (whether commercial or residential) could be classified as an operator under these regulations.
• Landlords: If a lease agreement includes the provision of heat and hot water via a heat network, a landlord could be considered a supplier and thereby fall within the scope of regulation.

Key Dates at a Glance

Compliance Warning: it is important to note that carrying out a regulated activity without the requisite authorisation will become a criminal offence under these new regulations.

Scope of Regulation: Obligations for Operators and Suppliers

The regulations apply different sets of rules depending on whether an entity is classified as an operator or a supplier of a heat network.

• “Operators”: These are entities that control the transfer of heat on the network, typically the asset owner or the entity with significant control over the network infrastructure. Their obligations include:
• Ensuring that the heat network complies with technical requirements under the Heat Network Technical Assurance Scheme (HNTAS).
• Operating and maintaining the heat network’s plant and equipment to guarantee security of supply.
• Sourcing the fuel or energy source required for the heat network to run.
• Being liable for Guaranteed Standards of Performance. These impose penalties for supply interruptions or missed appointments.
• Complying with network decarbonisation requirements.
• “Suppliers”: This refers to the entity that holds the heat supply contract directly with customers (which can sometimes be an ESCO). Their obligations include:
• Maintaining a clear contractual relationship with consumers for the supply of heating, cooling, or hot water.
• Ensuring transparent communication with consumers, particularly regarding billing and pricing information.
• Implementing a defined complaints procedure for effective complaints handling.
• Identifying and providing support to vulnerable customers and maintaining a Priority Services Register (PRS).
• Offering debt support specifically for domestic customers.

Heat Zoning

Heat zones will designate areas where a heat network is the lowest cost and lowest carbon solution, and buildings inside a zone will be required to connect to create customer demand and boost investor confidence. A central “Heat Network Zoning Authority” within central government will set national standards and a consistent methodology for identifying zones. At local level, a “Zone Coordinator”— often a local authority subject to fitness criteria — will refine zone boundaries with stakeholders and receive central funding to facilitate delivery.

Recommended Actions

To ensure compliance with the upcoming regulations, heat market participants should consider the following actions:

• Operators and Suppliers should register with Ofgem’s digital service once it launches in Spring 2026;
• Operators and Suppliers should familiarise themselves with the HNTAS, which mandates minimum levels of performance and reliability that heat networks must meet to ensure compliance. Existing defects and inefficiencies should be identified well in advance to ensure any necessary works or upgrades can be carried out;
• Identify existing heat networks – identify and review current sites where heat and cooling is supplied through a communal or district network;
• Operator or Supplier – assess whether you will be a heat network “Operator” or “Supplier” under the new regulations (see definitions above);
• Review heat network contracts – the following specific provisions should be reviewed:
• heat charges/customer tariffs – how will customer tariffs and charges change once further detail is provided on Ofgem’s pricing proposals?
• change in law provisions - should be reviewed to see if they include responsibility for any additional costs incurred as a result of the new regulations. This is especially important for long terms ESCO concessions or energy services agreements. Where contracts are currently under negotiation, check how the new regulations will apply and include express wording regarding compliance and authorisation; and
• heat supply and billing arrangements – existing billing arrangements should be reviewed particularly where the heat costs are recovered as part of the rent or service charge. Ofgem are providing further detail on “unbundling heat charges” but understanding your existing billing arrangements will be key especially in understanding whether any mandatory information needs to be provided to end customers.

If you would like to know more about how the regulations will impact you, please get in touch with a member of our Green Energy Group.