Introduction
Until 2026, heat networks in the UK have been unregulated as utilities. In the absence of firm rules for operators and suppliers of heat networks, this has led to inconsistent approaches to billing, prices, and more limited protections for consumers, in particular vulnerable customers. This changed from 27 January 2026, bringing the 14,000 heat networks currently operating in the UK more in line with other utilities and paving the way for more regulation of district/communal heating.
The landmark Energy Act 2023 (“EA 2023”) has revolutionised the regulatory landscape for heat networks across England, Scotland, and Wales, ushering in a new era of consumer protection and sector accountability. Ofgem has been appointed as the dedicated heat networks regulator in England, Scotland, and Wales, and a robust authorisation regime now governs all organisations supplying or operating a heat network.
Building on this transformative foundation, the Heat Networks (Market Framework) (Great Britain) Regulations 2025 (as amended) (the “Market Framework Regulations”) deliver a comprehensive implementation of the EA 2023 regime, bringing the heat sector further into line with other regulated utilities, such as gas and electricity. The Market Framework Regulations build on the Heat Network (Metering and Billing) Regulations 2014 (the “2014 Regulations”) which provided foundational obligations for heat network operators in Great Britain. The Market Framework Regulations recognise the metering and billing obligations under the 2014 Regulations as continuing requirements. Together, these legislative frameworks create a modern regulatory regime for the industry and promise greater security and fairness for consumers.
Who do the Market Framework Regulations apply to?
The Market Framework Regulations designate “operation” of heat networks (controlling and maintaining the transfer of thermal energy) and “supply” (holding the contractual relationship with end customers) of heating, cooling or hot water via heat networks as “regulated activities,” requiring authorisation by Ofgem, and registration as an operator or supplier. It captures both district (multi-building) and communal (separate premises within one building) networks. Certain types of networks, namely Houses in Multiple Occupation (HMOs) (a single house or building with shared facilities and where heating is provided through a shared system), converted buildings with a shared domestic heating system, and third-party waste heat producers are exempt from regulation.
What are the changes from 27 January 2026?
Authorisation and Registration
From 27 January 2026 (the “Launch Date”) heat network operators and suppliers (unless exempt) must comply with the new authorisation conditions (the “Authorisation Conditions”). Failure to comply with the Authorisation Conditions could lead to enforcement action from Ofgem. The Authorisation Conditions (available here) are split into three sections:
- Section A covers obligations on both operators and suppliers, primarily concerning fair pricing, financial resilience and registration;
- Section B covers obligations on suppliers, encompassing the bulk of the consumer protection obligations such as complaints handling and priority service registers; and
- Section C covers obligations on operators, designed to ensure the provision of consistent service.
Ofgem has published additional guidance on registration, financial resilience, fair pricing, and consumer protection requirements, giving the sector a clearer overview of how to comply with the new rules.
Registration and Deemed Authorisation
A “deemed authorisation” regime has been introduced to ease the transition for existing networks. Any heat network operator/supplier already operating before 1 April 2025, or beginning operation between 1 April 2025 and 26 January 2027, is automatically deemed authorised to operate under the Market Framework Regulations. As per the Market Framework Regulations, operators and suppliers who begin their activities after 1 April 2025 will be deemed authorised only until the end of the “Initial Period.” The Initial Period began on 1 April 2025 and ends on 27 January 2028 (the second anniversary of the Launch Date).
However, despite being deemed authorised, these operators/suppliers must still register with Ofgem and provide detailed information about their networks (see Ofgem’s guidance on registration for more information). Such registration must be completed via the Heat Networks Digital Service (due to be launched in Spring 2026) by 26 January 2027.
Proving financial resilience and SAR
In line with other regulated utilities, heating is now also subject to financial resilience checks and heating customers will have a “safety net” of the Special Administration Regime (“SAR”), a new statutory mechanism designed to protect consumers if a “protected heat network company” becomes unable to continue operating.
Authorised persons must provide Ofgem with details about their corporate structure and persons with “Significant Managerial Responsibility or Influence” (who must be “fit and proper” to fill the role), technical information about the network, a continuity plan and other financial resilience information, and high-level customer details (including on vulnerability).
As part of registration, Ofgem requires authorised persons to demonstrate financial resilience. While Ofgem has not set specific rules about financial management, it requires authorised persons to follow industry best practices and submit financial data points such as net profit and loss for the last financial year at registration. A “continuity plan” must also be submitted, which sets out the arrangements for transferring the functions of an authorised person to a successor in case of an insolvency. Authorised persons must annually confirm a continuity plan is in place.
The SAR, which acts as a regulatory backstop, will only come into effect in insolvency cases where all other commercial solutions to secure continued supply for the customer have been exhausted. The Market Framework Regulations set out how an administrator would maintain operations, recover costs and ultimately stabilise or transfer the failing network, providing a safety net similar to those already used in the gas and electricity sectors.
Ofgem’s detailed guidance on financial resilience sets out the scope of these financial resilience obligations and provides guidance on the introduction of a SAR for heat networks.
Fair Pricing and Cost Allocation
Ofgem’s fair pricing and cost allocation guidance provides six key principles that will guide how Ofgem assesses compliance with a new fair pricing condition. Allowing holistic oversight of the billing process plugs a gap in the 2014 Regulations’ light-touch approach and responds to consumer concerns around price hikes. The principles are:
- Cost-reflective pricing (costs to the consumer should account for the additional strain they put on the network or their usage, rather than extraneous factors);
- Cost efficiency (authorised persons should do everything they can to minimise costs without compromising on service standards);
- Fair and reasonable returns (profits must be proportionate to the risk incurred in providing services);
- Consumer impact (as a balancing factor against price hikes);
- Price transparency (consumers should understand what they are being charged for and why); and
- Regulatory control (outsourced services, and the costs they bring, must be subject to sufficient oversight by authorised persons).
Consumers must be supplied with clear and accurate information (especially concerning their rights), and their heat supply contracts must be easily understandable and comprehensive. Suppliers must identify and maintain lists of vulnerable customers - such as those with children under 2 and those over 75 or with terminal illnesses – and prioritise these customers in the provision of services. There are also safeguards in place preventing the installation of pre-payment meters for vulnerable customers without their explicit consent.
Billing obligations are now enforceable authorisation conditions, which was not the case under the 2014 Regulations. Amongst other obligations, suppliers must make it clear they operate as monopoly providers, and in most cases can only back-bill for twelve months. Suppliers must also maintain clear channels of communication with consumers and highlight their complaints service at least once per year.
The Market Framework Regulations also introduced a new “deemed contracts” regime, commencing on the Launch Date, which arises where a premises is supplied with heating, cooling or hot water by an authorised person without a formal heat supply agreement. When supply is under a deemed contract, authorised persons must ensure consumers receive the Principal Terms of that deemed contract and are informed that alternative Heat Supply Contracts—with potentially different terms—are available, along with guidance on how to access further information. In addition, if a consumer requests a copy of their deemed contract, this must be provided free of charge within a reasonable period of time. These all form part of the crucial protections for consumers where deemed contracts are in effect.
Ofgem’s Approach to Compliance with the Authorisation Conditions
Ofgem has the power to issue financial penalties, or compliance orders and consumer redress orders which are enforceable in civil proceedings as part of enforcing compliance with the Authorisation Conditions. Whilst Ofgem’s aim is to take a collaborative and supportive stance to non-compliance, in more serious cases Ofgem reserves the right to respond firmly. Ofgem can also take enforcement action under the Competition Act 1998 (where deemed appropriate). Recognising the diverse nature of heat networks—differing in age, scale, purpose, and business model—Ofgem acknowledges that regulating them under a single scheme poses challenges and potential ambiguities to address.
Looking Ahead – What’s in the pipeline
As mentioned above, Ofgem’s Heat Networks Digital Service is due to be available in Spring 2026, to enable registration under the Market Framework Regulations.
Separately, the UK Government is running a consultation on the introduction of regulatory heat network technical standards known as the Heat Networks Technical Assurance Scheme (“HNTAS”), which is open until 15 April 2026. The HNTAS is a set of mandatory technical standards and compliance certification processes for heat networks. Drafts of the technical standards, to be known as “TS1,” have been published and are not expected to change significantly from their current form. Operators will need to comply with TS1 and the Authorisation Conditions.
What do you need to do now?
This is a significant change to the previous unregulated position of heat networks. Critically, Ofgem has powers to impose penalties and enforceable orders for breaches of the authorisation conditions, and carrying out the regulated activities without authorisation is a criminal offence.
It is therefore critical for those who may be in operator and/or supplier roles (especially landlords and building managers) to consider and confirm which, if any, of the regulated activities they carry out. If they do, it is important to assess and confirm compliance with the new regime. Be it reviewing existing arrangements, technical audits or updating internal policies, particularly in relation to consumer protection clauses, maintaining awareness of updates to the conditions and the release of new tools and documents will be crucial to ensuring compliance going forward.
Prepared with assistance from Jack Bell, Trainee Solicitor in our Energy and Infrastructure team.
