Heat Networks

A heat network is a system that uses one or more central sources to generate heat, which is then pumped through underground pipes to provide space heating and hot water to homes and businesses. They can operate at high or ambient temperatures and often the heat is supplied alongside cooling and private wire electricity. 

They are a common feature of new build residential and mixed-use developments, city regeneration schemes and commercial/industrial buildings. Capturing and supplying waste heat from sources such as incinerators or data centres can also create revenue opportunities. Boosted by government funding and first-time regulation, the UK market is rapidly growing and attracting private investment. 

Some heat networks are large enough to attract an energy services company (“ESCO”) to operate the network and supply heat to customers on a full-risk basis. Others are landowner-led where one or more services are outsourced to a service provider, such as operation, billing and customer services. Some schemes are best served by a hybrid of the two.

Heat generating technologies

The most appropriate technology can depend on the customer demand profile, density of the buildings to be supplied, the ground conditions and the proximity of the site to a waste heat source. Larger schemes can utilise more than one type of generating plant along the network.

• Gas - the vast majority of the UK’s legacy heat networks are gas-fired high-temperature systems and can often be used to generate both heat and electricity, known as “combined heat and power” or “CHP”. They are no longer considered low-carbon and new installations will not meet planning or building regulation standards. Over time, existing systems will be phased out for lower-carbon solutions.
• Heat pumps – these run on electricity. They take ambient heat from the air, water or ground and can boost and/or reduce the temperature to provide heat and/or cooling. They can also boost the temperature of waste heat from sources such as industry and data centres. Large-scale heat pumps are the most widely used alternative to gas-fired CHP and smaller-scale ground source schemes are ideal for low density housing.
• Waste heat recovery – many commercial and industrial process create heat as a byproduct, which can be harnessed and either re-used by the owner or sold to third parties, perhaps neighbouring developments. Energy from waste plants and data centres are common sources.
• Geothermal – heat can be taken from the ground at temperatures ranging from 10°C to 40°C degrees, depending on the depth of the borehole. Former coal and tin mines provide ideal extraction infrastructure.

Property rights

All heat networks run through land or buildings and so operators will have to ensure that they have sufficient access rights. Short-term service operators should be granted a simple access licence, whereas ESCOs taking long-term operational risk will expect a lease of the generating plant and a lease or easements over the network. It is imperative that landowners accommodate such rights in their development and disposal plans. 

Heat network regulation

The heat networks sector is at the start of a major transition, facing its first wholesale regulation with the introduction of the Heat Networks (Market Framework) (Great Britain) Regulations 2025. This creates new regulated activities of a heat supplier and a network operator, meaning that neither role can be carried out without authorisation.

The key aims of the regulations are to protect customers, improve technical standards, boost investor confidence and decarbonise the sector. It will be introduced in stages with the majority yet to be brought into force and much of the detail still subject to public consultation. The good news is that existing networks will automatically be authorised but operators and suppliers will have until January 2026 to make sure they can comply with the authorisation conditions and standards.

It is essential that anyone with an existing network (or planning one) understands their compliance obligations and the consequences of failing to meet them. Now is the time to understand what assets you control and which contracts may need amending to ensure compliance.

We can guide landowners, suppliers and operators through the regulatory requirements and future proof contracts for the changes to come. We can also support in the diligence of existing arrangements and how they may need to be adapted.

Heat network zoning

To help achieve its ambition of heat networks meeting one fifth of the UK’s heat demand by 2050, Government has sought to create customer demand and boost investor confidence by establishing heat “zones” – geographical areas identified as being suitable for a heat network to provide the lowest cost, low carbon solution.  

All new build properties, existing buildings with a communal heating system and non-domestic buildings above an energy use threshold, will likely be obliged to connect into the heat network.  

Heat zone co-ordinators will identify the zone boundary and potential heat sources, a role that will likely be undertaken by local authorities. They will procure and appoint an ESCO, which will be entitled to exclusively operate and make supplies within the zone. 

Government hopes to introduce regulation to govern the identification and management of zones at both a national and regional level during 2025. There has not yet been a formal response to the last consultation published in December 2023 but, in the meantime, a pilot scheme engaged with 28 local authorities to test and refine the methodology for identifying a zone.