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With the "go live" date for regulation of heat networks fast approaching (27 January 2026), network operators - and some landlords - need to make sure they're prepared for the new regime.
What's happening in January 2026?
Historically, businesses involved in the provision of heat networks have not been regulated in the same way as other utility providers – but that will change from 27 January 2026, when a new supervisory regime will be introduced under the Energy Act 2023, with Ofgem as regulator.
Who will be caught by the regime?
Unsurprisingly, heat network operators will be regulated – but landlords could also be caught (where they are involved in the supply of heat and hot water via networks). For example, if a lease includes the provision of heat and hot water via a heat network, the landlord may fall within scope – because it will be regarded as a "supplier". By contrast, where an energy services company (commonly referred to as an "ESCO") is appointed to run the heat network and contracts directly with customers, the landlord is unlikely to fall within scope. This arrangement – which avoids the landlord being regulated – is what we are typically seeing with new developments. However, where no ESCO is involved (or where the ESCO does not contract directly with customers), landlords – especially those of less recent developments - could be caught.
What will regulated entities have to do?
Regulated entities will be required to:
- comply with consumer protection obligations relating to pricing and billing, performance standards and compensation, unbundling of the service charge from heat supply (so consumers can easily see how much their heating/hot water is costing) and treatment of vulnerable consumers, such as the elderly or disabled;
- draw up contingency plans designed to ensure continuity of supply in the event of network failure or operator insolvency and keep these under review; and
- comply with various reporting obligations designed to enable Ofgem to monitor compliance with the above obligations and check that entities involved in heat networks remain on a sound financial footing.
Whilst the final details of these conditions are still to be confirmed, draft materials published by Ofgem for consultation provide a reasonable steer on what is likely to be expected of regulated entities.
Will Ofgem expect full Day 1 compliance from 27 January 2026?
Although Ofgem will have power to enforce authorisation conditions from 27 January 2026, it appears to accept that full Day 1 compliance with all aspects of the regulatory regime is unrealistic. Key aspects of the regime will therefore be phased in over the course of 2026. For example, one of the requirements is to register with Ofgem – but regulated entities will not be able to do so until the launch of the digital service for heat network regulation in Spring 2026. Indeed, the deadline for registration is not until 26 January 2027, which gives regulated entities more time to comply with requirements such as drawing up continuity plans (which they are expected to have in place before registering). Similarly, Ofgem does not expect to introduce data reporting requirements until "the latter part of 2026" – although it will expect data to be collected by regulated entities from April 2026 (which is only 5 months away).
That said, if Ofgem were to become aware that a regulated entity was behaving in a way which gave it significant cause for concern (e.g. because it was leading to serious customer detriment), our view is that it could very well decide to act on the basis of its new regulatory powers – notwithstanding that the "full fat" regulatory regime was still effectively being rolled out. Regulated entities will also need to ensure that they have adequate systems and resources in place to meet the ongoing demands of the new regime e.g. as regards regular reporting requirements and consumer protection standards.
For more information on heat networks generally, see our briefing: A short guide to heat networks in the UK.
How we can help
Travers Smith offers a comprehensive approach to navigating the complexities of heat networks:
- Dedicated Commercial Team: Our experts can guide you through regulatory compliance, zoning requirements and the integration of heat networks into your development projects. We also work closely with experts from our Real Estate, Planning and Construction teams.
- Contract Negotiation and Drafting: We have considerable experience in drafting and negotiating robust and fair contractual arrangements with all stakeholders, including ESCO contracts, construction agreements, leases and supply agreements, and advertising on planning and regulatory requirements.
- Legal and Strategic Advice: We leverage our extensive experience to optimise your business strategy, whether implementing new heat networks or expanding existing ones.
Our combined expertise ensures your project is not only legally compliant but strategically positioned to benefit from the evolving regulatory landscape. Contact us today to learn how we can support your initiatives in the heat network sector.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
