The Energy Act 2023 enshrines the principle of expanding the use of heat networks. Arezou Yavarianfar, senior associate at law firm Winckworth Sherwood, looks at how those developing and operating heat networks can stay up to date with the developing regulatory framework
The Energy Act 2023, which received Royal Assent on 26 October 2023, cements the UK’s energy priorities in promoting increased sustainability and decarbonisation and includes a new regulatory framework for the suppliers and operators of heat networks to navigate and comply with.
To those in the public and private sector that are well aware of heat networks’ potential, this is an area that will be of particular interest.
The heat network opportunity
Heat networks work by supplying heat from a central source, the “energy centre”, to individual properties via an infrastructure network of underground pipes.
In this way, they can improve efficiencies by being able to cover a large area without the need for individual boilers in every building to share energy, as well as capturing waste heat and redistributing it at peak times.
These heat networks are recognised as a means to facilitate the drive towards net zero due to their unique design and connections.
These can enhance efficiency and reduce the carbon emission of each development by connecting with the surrounding buildings in order to share energy.
This presents opportunities for a variety of development types where there are large-scale construction and multiple units or properties on a site. This can include housing schemes, as well as campuses for offices, hospitals and schools.
As national energy grids adapt to fluctuating demands and changing methods of generation in the form of renewables, these local energy networks are seen as a critical tool in helping to balance demand across the UK.
While heat networks can simply plug into the wider distribution network, they can also draw on onsite generation, including heat pump technology, combined heat and power or even captured waste heat from sources such as data centres.
The implications of the Energy Act 2023
While heat networks have already been deployed relatively widely in the UK in the public and private sectors, the UK government has supported their continued expansion by offering a series of grants and funding levers to support the transition.
The principle of expanding the use of heat networks is enshrined within the act, with the Climate Change Committee anticipating that 18% of heat could come from these grids by 2050, compared with 2% now.
The act also establishes a new regulatory framework for heat networks, which had been previously outside the ambit of the regulator Ofgem until now. Developers and those that operate and supply heat through heat networks should be aware of the new regulations and what will change to ensure they are in compliance.
Navigating the uncertainty around the act
The act establishes the legislative grounding for regulation. However, the critical next milestone in terms of the development of the new regulatory framework overseen by Ofgem as the regulator of heat networks will be the enactment of secondary legislation, which is anticipated to draw out further details and clarity for the new regulatory landscape that is being designed and will include the technical requirements for heat networks.
The act also provides an authorisation regime, which Ofgem will manage, and incentivises the use of heat pumps as a low-carbon alternative to gas boilers.
The suppliers and operators of the heat networks will need to comply with enhanced performance requirements and consumer protections that are anticipated for existing and future customers, which will be enforced by Ofgem.
The act also provides the powers for the UK government to implement heat network “zoning” in England through regulations – a topic that is currently being consulted on until the end of February.
This enables local authorities to designate zones where heat networks can provide low-cost, low carbon heating options. In this way local communities will be able to develop more heat networks where businesses and homes can access cheaper and greener heat.
Securing funding for the development of heat networks will also be critical in realising the potential that they present – both in terms of more energy efficient projects but also more innovative technologies being developed in the market.
The Energy Act 2023 is one of the most transformative pieces of legislation for the energy sector in decades, but we are only at the initial stages when it comes to heat networks, where further clarity in the form of secondary legislation is anticipated.
It is important for those developing, operating heat networks and supplying heat to stay up to date with the regulatory framework as it transpires in order to ensure compliance.
Arezou Yavarianfar
Senior associate
Winckworth Sherwood
Tel: +44 (0)20 7593 5000
