Heat Network Regulation: Ofgem oversight, monitoring and reporting

Operators and suppliers need to get to grips with the new regulatory regime. This article examines how the authorisation process will work, ongoing reporting obligations, and Ofgem's powers to monitor and oversee heat networks.

This article is part of our Heat Network Regulation series which looks at key issues under the latest round of consultations published by Ofgem and the Department for Energy Security and Net Zero on 7 November 2024. If you have any involvement with a heat network, check how regulation will apply to you and whether you will be considered a heat network "operator" or "supplier". 

Regulatory structure

The Energy Act 2023 appointed Ofgem as regulator of heat networks and provided the framework for the introduction of market regulation.

Heat network operators and suppliers must be authorised by Ofgem to carry out "operation" and "supply". These regulated activities will have wide application, from large scale ESCOs through to smaller landlord run systems. Our article on the scope of regulation looks at regulated activities in more detail and how to determine if you will need authorisation.

Ofgem will be responsible for setting rules that heat network operators and suppliers must follow, managing the authorisation regime, overseeing compliance, and managing audit and enforcement activity. 

Authorisation Conditions

Authorisation Conditions will set out the standards and obligations that apply to authorised persons carrying out regulated activities on heat networks. The draft Authorisation Conditions have been published as an appendix to the joint DESNZ / Ofgem consultation for comment.

The Heat Networks (Market Framework) (Great Britain) Regulations 2025 will prohibit any person from carrying out "operation" and "supply" activities without authorisation. It is proposed that from 27 January 2026, carrying out these regulated activities without authorisation will become a criminal offence.

There will be a separate "deemed authorisation" process for any existing activity prior to 1 April 2025 or new activity during an initial transitionary period from 1 April 2025 - 26 January 2027. Our article on how to prepare looks at the proposed transitional arrangements in further detail.

When you need an authorisation?

From January 2027, heat network operators and suppliers must apply to Ofgem to obtain an authorisation before carrying out any regulated activities (ie "operation" or "supply"). This means that authorisation will be required before any customers can receive heat and will need to be factored into programme timelines.

Further consultation on the Heat Network Technical Assurance Scheme (HNTAS) is expected, but the intention is that heat networks will be required to pass assessments at key stages during its lifecycle –design, construction, and operation. HNTAS certification and authorisation will be required following commissioning and before operation and maintenance activities can commence.

For phased developments, where the heat network is being built-out as part of each new plot or building, new authorisations will be required for each phase before the heat network can be operated or heat can be supplied to customers.

Application process

Applications will be made via a new digital service and will likely involve providing information about the organisation and network (including energy centre location, technology, generation capacity, building information and consumer type), with evidence and declarations to confirm that appropriate policies and procedures are in place to enable compliance with the Authorisation Conditions.

Ofgem will assess the evidence and decide to approve or refuse authorisation. Turnaround times are not proposed under the consultation but will need to be factored into development programmes – particularly where construction heat or cooling is required.

In order to streamline the authorisation process, Ofgem has proposed that each entity will have a single authorisation that lists out each communal or district network and specify whether that person is authorised to carry out operation or supply on that network (or both).

Changes and transfer of authorisation

Ofgem's new digital service will be used for ongoing regulatory interactions (including informing Ofgem of any changes to heat networks or activities). Certain activities must be notified to Ofgem including changes to energy source, technology, plant replacement or type of consumers.

The consultation proposes that heat network authorisations can be transferred to another authorised entity – but it is unclear how this this will work in practice.

The receiving entity must apply for authorisation in relation to the network and activities for which authorisation is being transferred. This has potential consequences for the sale of buildings with heat network consumers, as the purchaser may be required to be authorised by Ofgem before the transfer can take place. 

Monitoring and Reporting

Regular monitoring and reporting requirements will be used to identify non-compliance, with Ofgem having powers to require further information to be provided on request. The consultation seeks feedback on how regular monitoring will start, regulator reporting metrics list, the frequency of data collection and the degree of granularity required.

Regular monitoring metrics are expected to include:

• General information: Key information on the heat network (e.g. number of customers).
• Metering: Total number of meters (or heat cost allocators), at what level of the network they are installed, any changes to metering and any warrants granted to install customer meters.
• Step-in: Confirmation of continuity plans and contractual step-in entity (if relevant) and financial resilience monitoring.
• Billing: Billing frequency, number of customers by type of payment method.
• Meter installation: Warrants granted, reason for warrant, change to metering.
• Pricing: Price data (unit rate, standing charge, tariff structure) and cost drivers.
• Vulnerability and debt: Details of customers on Priority Service Register, in debt, self-disconnecting, disconnection for non-payment, on a repayment plan, reconnected, total value of bad debt.
• Quality of service: Number of complaints, complaint resolution, number of unplanned/planned interruptions, length of planned/unplanned interruptions, Guaranteed Standard of Performance payments.

This is a significant volume of data and reporting that will need to be collated. Monitoring data will be gathered across three levels: authorisation (i.e. from the regulated entity that holds an authorisation), heat network level and building level. 

Audit, compliance and enforcement

Ofgem currently oversee 21 active licensed suppliers in the gas and electricity retail energy market (as of Q2 2024) – whereas there are estimated to be over 14,000 heat networks across the UK, with 90% of heat suppliers owning fewer than ten heat networks. In a completely different market, it remains to be seen how Ofgem will be able to monitor and enforce compliance with consumer regulation. 

For developers or landlords negotiating heat-related contracts in the near future, relying on future regulatory protections may not be sufficient to guarantee consumer outcomes until the regulatory regime is fully established. 

This article is part of our Heat Network Regulation series. Read our overview of the proposals under the latest round of consultations.

If you are concerned about any of the issues raised under the consultations or how regulation may impact you, please get in touch with a member of our Energy and Sustainability team.