UK government progresses towards a regulated heat market

With five months until the UK government's “launch date” of heat network regulation enforcement, operators and suppliers need to prepare for their upcoming obligations.

From fair pricing regimes to technical standards, here’s what to expect. 

Government response to consultation on consumer protections

On 8 August, the UK government responded to a consultation on implementing consumer protections. This was the third and final joint DESNZ and Ofgem consultation on consumer protections for heat network consumers, following previous consultations in 2020 and 2023.

The Heat Networks (Market Framework) (Great Britain) Regulations 2025 (Regulations) were introduced in April 2025, but many provisions, including those relating to consumer protection, will be implemented in phases. Although the consumer advocacy, advice and redress functions kicked in from 1 April, Ofgem’s powers of enforcement of authorisation conditions are scheduled to commence in January 2026. 

The government proposed various consumer protection provisions in the consultation, including: Standards of Conduct to ensure that consumers are treated fairly; a fair pricing authorisation condition; protections for vulnerable consumers; Guaranteed Standards of Performances (GSOPs); and step-in measures for network failures.

Perhaps the most interesting finding from the consultation response is the government's decision to abandon proposals for a Last Resort Direction. This process would have allowed Ofgem to appoint replacement entities to continue authorised activities in certain circumstances where contractual step-in arrangements have failed. The government's view is that the proposal would be too challenging to implement. The government also signals that it will not proceed with a universal requirement on contractual step-in where suppliers fail but intends to introduce a procedure for operators to ensure customers receive uninterrupted supply where there is a separate operator and supplier in a network.

These changes in government policy regarding supplier of last resort and step-in measures emphasise the need for robust contractual arrangements to de-risk heat network projects and protect customers from discontinued supply.

Other key changes include the government's deferral of any further policy decision on GSOPs. GSOPs for heat networks will not be part of the initial requirements for authorisation and instead are likely be phased in from January 2027. The government is also deferring the introduction of powers of entry for debt management, which have been controversial in gas and electricity markets. Otherwise, the government is largely retaining the core proposals from the consultation but will be making some adjustments based on stakeholder feedback.

Heat Network Technical Assurance Scheme (HNTAS)

On 30 July, the UK government published draft versions of the technical specifications with which heat network operators will be requirement to comply. The Heat Network Technical Assurance Scheme (HNTAS) includes technical requirements, performance monitoring requirements, examples of key failures and evidence requirements to demonstrate conformity.

HNTAS is due to launch in 2026 and aims to ensure that heat networks meet a minimum level of performance and reliability. Technical standards regulation will apply to heat networks from communal to city wide district systems, including both new build and existing legacy networks.

Funding options

While the government gears up towards the roll-out of the Regulations, three of its ongoing grants supporting the development of heat networks in England and Wales have reopened for applications:

1. Heat Networks Delivery Unit (HNDU): Round 15 is now open for applications and will close on 12 September 2025. HNDU provides grant funding and guidance for heat network project development. Round 15 is open to local authorities in England and Wales, NHS Trusts, universities, other government departments, property developers and registered social landlords.
2. Heat Network Efficiency Scheme (HNES): Round 10 is now open for applications and will close on 19 September 2025. The HNES provides funding to public, private and third sector applicants in England and Wales to support improvements to existing district heating or communal heating projects that are operating sub-optimally and resulting in poor outcomes for customers and operators.
3. Green Heat Network Fund (GHNF): Round 10 is now open for applications and will close at midnight on 7 November 2025. The GHNF provides capital grant funding to organisations in the public, private and third sectors in England to support the commercialisation and construction of new low and zero carbon heat networks and the retrofitting and expansion of existing heat networks.

What’s next?

From 27 January 2026, Ofgem will have the power to impose significant penalties and compensation on suppliers and operators who break authorisation conditions. Existing operators and suppliers have until 26 January 2027 to submit certain information to Ofgem in order to retain their authorisation, while new entrants to the market will need to apply from scratch.

In the lead up to the the government's “launch date” for enforcement of the Regulations in January 2026, operators and suppliers should expect a flurry of information from the government signalling its approach. Further consultations and responses on authorisation conditions, pricing guidance and Ofgem penalty policy are in the pipeline. The government should also release further information on heat network zoning, which will mandate connection of certain buildings to a heat network where it offer the most cost-effective and low-carbon solution in the zone.

Get in touch

The regulatory framework is constantly evolving, and stakeholders must ensure they prepare for their impending obligations. As evidenced by the change in approach by the government on certain points, stakeholders should understand those issues which the regulatory framework will defer to parties’ contractual arrangements.

At Bird & Bird we have been at the forefront of legal advice in district heating and utility projects for over 15 years, with clients comprising operators and suppliers, commercial landlords, developers, local authorities, energy offtakers and network customers. We're there for our clients from structuring, procurement, contract negotiation and compliance aspects of projects. Our expertise has been recognised by our appointment on the Department for Energy Security and Net Zero’s heat networks zoning framework.

If you want to learn more about how these Regulations will affect your business and future plans for heat networks, then do not hesitate to get in touch.