Turning up the heat on heat networks: new regulation takes effect in 2026

While heat networks in Great Britain have been subject to regulations and legislation for some time, they have not, to date, been fully regulated as utilities. This is set to change with the new Heat Networks (Market Framework) Regulations 2025 (the Regulations) coming into force in January 2026, and Ofgem set to grant licences to heat network operators.

Their operation and pricing models will be regulated, largely for the protection of consumers – providing sufficient rights for them to understand and advocate for themselves, and ensuring that minimum service levels are met.

So why are heat network owners and operators being regulated now? A big part of the answer is the drive towards achieving net zero. While the current UK government is working toward achieving a fully clean power electricity system by 2030, one of the next big challenges will be decarbonation of heat.  To drive large scale decarbonisation, zones will be designated for heat networks where there will be supply of waste heat (for example, from industrial uses) but also a source of heat demand (for example, housing or retail spaces). Within these zones, the providers of heat network infrastructure will become natural monopolies; as such, they will have the power to dictate their own terms and to operate their businesses in any way they like as there will be no competing network operators. This is where regulation is important to ensure that consumers are protected and that they can hold providers to account for meeting minimum service standards.

Where are we now?

The Heat Network (Metering and Billing) Regulations 2014 have been in force in GB for over a decade.  They require heat network suppliers to submit a notification to government once operational and to provide updates every four years on the status and performance of the networks they manage.  Various government schemes have offered support for developing and scaling up heat networks over the years, including:

• creation of the Heat Networks Delivery Unit (HNDU) in 2013, which is still operating and closed its 15th funding round in September 2025;
• the Heat Networks Investment Project (HNIP), launched in 2017 (now closed);
• the Green Heat Network Fund (GHNF), which succeeded HNIP in 2022 and closed its 10th application round in November 2025; and
• the Heat Network Efficiency Scheme (HNES), launched in 2022 with applications currently open for its 11th funding round.

Uptake of available funding has increased the number of heat networks across the UK, with government targeting an exponential increase by 2050.  According to a UK market overview paper published in May 2024, the 2050 vision is to create “the market conditions to accelerate deployment of reliable, decarbonised heating and cooling networks, enabling us to unlock the sector’s potential and achieving our net zero commitments”. This means increasing the share of heating that comes from heat networks from 3% in 2024 to 20% in 2050.

The Energy Act 2023 marked a pivotal step in GB’s journey toward decarbonising heat, establishing a statutory framework for heat networks and introducing Ofgem as the sector’s regulator.  The Act also laid the foundation for heat network “zones,” designed to accelerate deployment in areas where they are most viable, and introduced consumer protection measures to ensure fair treatment and transparency. 

When the Act came into force, there were already over 14,000 heat networks in the UK, providing heating and hot water to over 480,000 customers. 

What is changing and why?

The Heat Networks (Market Framework) (Great Britain) Regulations 2025 were made in exercise of powers conferred by the Energy Act 2023 and set out the detailed rules that will govern the sector from 27 January 2026. These include mandatory authorisation for operators and suppliers, technical and performance standards, and robust consumer protections such as clear billing and complaint-handling processes. Together, these measures aim to create a fair, competitive, and transparent market that supports investment and consumer confidence.

Regulating heat networks isn’t just a technical exercise, it’s central to the UK’s energy transition. Heating is one of the most carbon-intensive parts of energy use, so shifting to low-carbon networks is critical to meeting the UK’s legally binding net-zero target by 2050.

Heat networks are being regulated for three key reasons:

1. Consumer Protection: Historically, heat network customers lacked statutory safeguards comparable to gas and electricity customers. The new framework introduces standards of conduct, fair pricing rules, transparent billing, and protections for vulnerable consumers. Customers will also be able to resolve disputes through the Energy Ombudsman and have access to compensation mechanisms for service failures. 
2. Market Standardisation and Accountability: Regulation introduces a mandatory authorisation regime for operators and suppliers, requiring compliance with minimum technical standards set out in the Heat Network Technical Assurance Scheme (HNTAS). This scheme will certify networks against performance and reliability benchmarks, ensuring consistent quality across the sector. 
3. Decarbonisation and Low-Carbon Technologies: Heat networks are central to the UK’s Net Zero strategy, offering a scalable way to deliver low-carbon heat in dense urban areas. Regulation aims to accelerate deployment and encourage integration of renewable and waste heat sources, reducing reliance on fossil fuels.

From 27 January 2026, it will be unlawful to operate a heat network or supply heating, cooling, or hot water to consumers without authorisation from Ofgem. Existing heat network operators, and those who start participating in any of the regulated activities during the first year after the regulations come into full force, will be deemed to be authorised, and will be required to register with Ofgem by 26 January 2027.  

Operators and future operators will need to prepare for this formal licensing regime, including:

• assessing initial compliance with HNTAS, including monitoring and measuring the performance of existing networks, to ascertain what improvement plans must be put in place to improve efficiency, reduce carbon emissions, and enhance consumer experience;
• implementing new governance structures and information processing to ensure that relevant information is caught for compliance with reporting requirements;
• compliances with financial resilience requirements set out in the new licence conditions;
• putting in place sufficient consumer facing advice and information to ensure that they can meet consumer protection requirements, including publication of transparent complaints processes, and relevant redirection to the Energy Ombudsman which became the official dispute resolution body for heat networks on 1 April 2025;
• reviewing contracts to ascertain whether any change in law provisions have been triggered, or if any other amendments are required to meet the new licence requirements. 

The government estimates compliance and familiarisation costs to heat network operators at £71 million, plus ongoing maintenance costs of £52 million across the sector.

Risks and opportunities

As is already familiar to the electricity and gas industries, Ofgem will have powers to impose penalties for licence breaches, and unauthorised participation in the regulated heat activities will constitute a criminal offence. While this imposes an initial administrative burden in terms of familiarisation costs, there are also significant opportunities that will come out of the new regulation. 

New heat networks have been announced in Bristol, Derby, the West Midlands, Lincolnshire, and the North West. Many projects have secured funding through the GHNF, which provides capital grants for commercialisation, construction, and retrofitting of low- and zero-carbon networks. 

The designation of heat network zones (areas where heat networks are deemed the lowest-cost decarbonisation option) will create exclusive rights for operators. Businesses should monitor these developments closely, as zoning could impose obligations on property owners to connect to networks within designated areas. 

Next steps

As set out above, prudent next steps for owners and operators of heat networks will include:

• prompt registration with Ofgem and the Energy Ombudsman;
• review of contractual arrangements and updating internal compliance policies;
• planning for technical audits across all operational networks to align with HNTAS standards;
• training relevant staff on new consumer protection obligations.

If you need assistance with getting up to speed on the new regulations, please do reach out to one of the authors or your usual Clyde & Co contact.