Scotland’s New Heat Networks Licensing Regime: What You Need To Know
At a Glance
What is proposed? An opt-in licensing regime enabling heat network developers to access statutory rights and powers comparable to gas and electricity providers - including compulsory purchase, wayleave rights, road works powers and land survey rights.
Why now? The UK Energy Act 2023 has superseded much of the original Heat Networks (Scotland) Act 2021 mandatory licensing framework. The Scottish Government is now proposing a streamlined, complementary regime that avoids regulatory duplication whilst addressing critical infrastructure delivery barriers.
What has changed since the Heat Networks Delivery Plan: Review Report 2024 (the "2024 Delivery Plan")? The 2024 Delivery Plan indicated that licensing proposals would be consulted on “during the next reporting period”. That consultation is now live. Importantly, the Government has abandoned its original mandatory licensing approach in favour of an opt-in model, reflecting the overlap with the GB authorisation regime.
Key deadline: The consultation closes on 5 June 2026.
Background: Why Has the Approach Changed?
The Heat Networks (Scotland) Act 2021 (the “2021 Act”) was the first UK legislation to regulate the heat network sector. The 2021 Act envisaged a mandatory licensing regime covering all operators, with fitness and solvency checks, in exchange for statutory rights and powers.
However, the Energy Act 2023 has fundamentally changed the regulatory landscape. Ofgem now administers a GB-wide authorisation regime, covering consumer protection, technical standards and step-in arrangements - areas the Scottish legislation was also intended to address. The GB regime came into force from April 2025 via the Heat Networks (Market Framework) (Great Britain) Regulations 2025, with regulatory rules from January 2026 and enforcement from January 2027. Please refer to our previous LawNow for more information on the Market Framework Regulations: Regulating UK Heat Networks: A new era.
The Scottish Government has concluded that implementing the original mandatory licensing regime alongside the GB authorisations would create “considerable duplication” and risk “overregulating” the sector at a critical early stage. This marks a significant policy shift from the position set out in the 2024 Delivery Plan, which still contemplated a regulatory licensing process that would "add to, rather than duplicate" the UK system. The Scottish Government has now gone further, proposing to make licensing entirely optional.
Crucially, consumer protection matters such as billing and pricing are reserved to Westminster, meaning the GB authorisation regime can do more to protect consumers than a Scottish regime acting alone. It should be noted that heat networks in Northern Ireland are covered by separate arrangements.
The Proposed Licensing Regime
Opt-In, Not Mandatory
The central proposal is an opt-in installation and maintenance licence, replacing the mandatory licensing regime originally envisaged under Part 1 of the 2021 Act. Only developers and operators who need statutory rights and powers need apply.
This approach aligns with a similar opt-in rights and powers licence being developed by the UK Government for England. The Government expects the cost of delivering the regime to fall at the lower end of the £1 million to £7.1 million range originally estimated for the mandatory proposals.
Scope
| Feature | Proposal |
| Licence holder | Organisations (companies, SPVs, JVs, energy service companies), not individual networks. An organisation would require only one licence to cover all of its heat networks across Scotland. The aim is to reduce the administrative burden for organisations recognising that operators may have multiple projects. |
| Technology | All heat network types - district, communal, shared ground loops, and ambient loops. |
| Geography | Scottish networks only - non-Scottish operators may apply but the licence covers Scottish operations only. |
Rights and Powers
The licence would grant statutory undertaker rights comparable to gas and electricity providers. These powers, set out in Part 6 of the 2021 Act, are unchanged from the original legislation:
| Power | Description |
| Compulsory acquisition | Purchase land required for construction or operation, subject to standard CPO processes. |
| Network wayleave rights | Transfer heat via pipework across land; install apparatus; enter land - either by agreement or necessary wayleave application to the Scottish Ministers. |
| Land entry for maintenance | Enter land to repair or replace apparatus. |
| Survey powers | Survey land to assess suitability for heat network development. |
| Road works | Subject to additional licence conditions being granted. |
Developers have consistently highlighted that the absence of these powers causes significant project delays - particularly when seeking access across third-party land, bridges, rail lines, or disused mines. The Scottish Government recognises that without these powers the sector may be unable to deliver at the pace and scale required to meet Scotland’s net zero targets.
Importantly, not every licence holder will be granted all the statutory undertaker rights and powers. The consultation proposes that licences will be tailored through a system of conditions and limitations, so that only the rights and powers actually required by the applicant are granted.
Regulator
The regulator could be Scottish Ministers (with Scottish Government administering day-to-day functions) or another organisation. This decision will be made at a future date in consultation with industry stakeholders. Separately, Ofgem administers the GB authorisations regime and has been appointed as the Scottish licensing authority for consumer protection purposes.
The Government expects relatively modest application volumes: 10 - 30 initial applications when the scheme launches, with 1 - 4 new applications per year thereafter. This reflects that most of Scotland’s 1,000+ known heat networks are small communal schemes, unlikely to need statutory powers.
Application Criteria
The consultation proposes a streamlined application process that avoids duplicating the fitness and suitability checks already carried out under the GB authorisation regime.
Applications would be assessed on:
- Expertise: Track record in heat networks (existing heat networks operated in Scotland, the UK or internationally, qualifications of key personnel).
- Financial standing: company accounts, sufficient financial resources for unexpected damages, third-party and public liability insurance.
- Compliance commitment: Acceptance of the licence conditions. The applicant must confirm their acceptance and adherence to the conditions of their licence, prior to its commencement.
Licence Conditions and Limitations
Licences would be subject to general conditions applicable to all licences and set by the regulator after consultation and specific licence conditions tailored to individual licensees. Limitations may restrict the scope of rights granted, for example, excluding road works powers where unnecessary.
Once a licence is granted, the regulator will carry out periodic reviews of the licensee’s performance and compliance with licence conditions.
Conditions and limitations can be modified post-grant, either at the licensee’s request or by the regulator. Modifications will require an application and fee.
Duration and Fees
Similar to gas and electricity licences, licences would have no expiry date and would continue until surrendered or revoked. Revocation would be a last resort, following compliance notices and potential fines, with a right of appeal.
Three fee types are proposed: an application fee, an ongoing monitoring fee, and modification fees. Fee levels will be set in future regulations: the 2021 Act financial memorandum estimated application fees of £3,150–£5,250 (2019 prices).
A public register of licences will be maintained, showing licence holder details, terms, commencement date and (if applicable) cessation date.
Wider Policy Context
Heat Network Zones and Mandatory Decarbonisation
Alongside the licensing proposals, the consultation signals the Government’s intention to require buildings within designated heat network zones to decarbonise their heating systems. The requirements would apply to:
- Buildings located within a designated heat network zone;
- Non-domestic buildings with annual heat demand exceeding 100 MWh; and
- Buildings not subject to exemption (e.g. planned demolition or already using clean heating).
Designated heat network zones are geographic areas identified by local authorities, typically under the 2021 Act, as the most cost-effective, low-carbon heating solution, aiding in investment certainty and deployment, with formal designations aimed for 2026/27.
A “Zone Coordinator” (which may be the local authority or Scottish Government) would be responsible for issuing notices to building owners within the zone, with a minimum notice period of not less than six months. The decision on who will act as Zone Coordinator will be made in consultation with local government, and the full remit of Zone Coordinators remains under consideration, with work expected to conclude in the first half of 2026.
This builds on the 2024 Delivery Plan, which highlighted heat network zones as a key demand assurance mechanism and noted that 13 local authorities had already published Local Heat and Energy Efficiency Strategies (LHEES) identifying significant heat network opportunities.
Changes to the Heat Networks (Scotland) Act 2021
The draft Heat in Buildings Bill will remove aspects of the 2021 Act that are no longer required following the passage of the UK Energy Act 2023. Specifically, the Register of Key Network Assets and associated Transfer Scheme will be removed from the 2021 Act. These provisions aimed to ensure that the operation of all of a heat network’s assets could be taken over by a third party in certain circumstances (for example, if the heat network operator went bankrupt).
Instead, the Scottish Government is working closely with the UK Government and Ofgem on plans to introduce GB-wide “step-in” provisions, which will provide the necessary protections for consumers should a heat network fail. Certain aspects of financial and insolvency law are reserved, and UK law can provide a greater degree of protection than is currently possible using the powers devolved to the Scottish Parliament.
Next Steps
The regulatory landscape for heat networks in Scotland is evolving rapidly, and early engagement with these consultations and frameworks will be essential for those seeking to position themselves effectively in what is set to become an increasingly regulated sector.
The consultation is open for responses until 5 June 2026. This is an opportunity to influence the final regime design, particularly on fee levels, regulator identity and the scope of licence conditions.
Prepared with assistance from Nicola Dempsey, Trainee Solicitor in our Energy and Infrastructure team.
