Regulatory excellence in heat networks and in residential buildings

Ofgem authorisation regime

The clock is ticking to register regulated activity (i.e. operating or supplying a heat network). But don't panic! This article sets out what you need to know about Ofgem's authorisation of heat networks regime and the action you can be taking to stay one step ahead.

Historically there has been little regulation of heat networks and Ofgem is now imposing a new authorisations regime. Any entity which operates a heat network and/or supplies heat, cooling or hot water through a heat network (regulated activity) will be required to register with Ofgem and be authorised under the new regime. For communal networks (supplying multiple consumers within a single building), it is envisaged that the authorised entity could be the owner, developer, or operator of the building in which the communal network is located.

The authorisation regime will be implemented in two steps:

Step one: registration 

From 1 April 2025, it is a requirement that any entity carrying out a regulated activity will need to register that activity in respect of each and every network with Ofgem. This applies to both any existing activity (i.e. ongoing prior to 1 April 2025) and any new activity (commencing after 1 April 2025). The deadline for registration for existing and new activity is 26 January 2027. Ofgem is proposing to use a digital platform for registration. Details are yet to be confirmed but are expected to be provided in early 2026.

Step two: authorisation

To ensure any operator or supplier is suitable they must be authorised by Ofgem. Any existing or new activity which is undertaken prior to 26 January 2027 will be deemed to be authorised. However, this is not a free pass. From 26 January 2026 Ofgem will impose its general authorisation conditions which set out how networks must be operated. Draft authorisation conditions have been published under the Heat Networks (Market Framework) (Great Britain) Regulations 2025 (Regulations). Compliance with the conditions is mandatory for all regulated activity.

Regulated activity which commences after 26 January 2027 will be required to go through a formal authorisation process. This will include providing more extensive information about the regulated activity being undertaken, for example, the network's structure, the customer base, metering arrangements, and pricing.

The new regime also brings in a framework for consumer protection (similar to the protection gas and electricity customers already have), minimum technical and performance standards, fair pricing, and enforcement powers.

District heat networks

Alongside the regulatory reform and as part of the net-zero targets, the government is introducing heat network zoning which is aimed at encouraging the development and expansion of district heat networks where they are likely to be lowest cost low carbon heating solution. It is expected that zone coordinators will be created to oversee the development of networks which will then be operated by third party operators. In order to increase the number of connections, certain buildings within a zone will be required to connect into the designated heat network. These will include:

• New buildings – new buildings within a designated zone are likely to be required by law to connect to a heat network. Even if your current building isn't in a zone, it may be prudent to design it to enable future connection into one.
• Existing buildings – over time it is expected that large existing buildings (especially those with a large communal heating demand) may be required or incentivised to connect into district networks.

Why does it matter?

• The regulatory regime is not optional. Should entities fail to register with Ofgem or comply with authorisation conditions, Ofgem can undertake enforcement action including imposing orders to comply with the authorisation conditions, revoking authorisation for an entity (for all or some of its regulated activities) or imposing fixed penalties. The maximum penalty will be the higher of £1 million or 10% of the authorised organisation's annual turnover.
• A non-compliant heat network exposes the owner/operator to consumer complaints and carries reputational risk. Operators will need to ensure that clear documentation and user guides are prepared for tenants setting out how the system works, how charges are calculated, what recourse they have and how complaints are handled.
• Designs should be future proofed as networks will be required to meet the Heat Network Technical Assurance Scheme (HNTAS) standards, which focus on energy efficiency, heat loss, metering, asset condition, and maintenance schedules. Any buildings not yet completed should be designed to these standards to avoid costly retrofits and mitigate the risk of non-compliance.

What can you be doing to get ready?

Whilst Ofgem is yet to finalise a number of requirements in respect of registration and authorisation (including the use of a digital platform and monitoring requirements) you can still start to prepare.

• Track the regulatory timeline. Ofgem published within its Heat Networks Authorisation and Regulatory Oversight decision a list of information which is expected to be required to to register an organisation and a specific regulated activity. If you are currently undertaking regulated activity or are preparing to undertake regulated activity you can prepare by consolidating the information ready for submission. It is envisaged that the digital platform for registration will be ready early 2026.
• You could also check whether your site lies within a future heat network zone and engage with local planning authorities early. The maps can be found here.

If you would be interested in finding out more about the regulatory regime for heat networks and the impact on build to rent owners developers and investors, please contact the team linked above.