A Hot Topic: New Regulations Turn up the Heat on DHNs

Against a backdrop of the transition to net zero, DHNs have expanded rapidly and now feature in most large UK developments and regeneration schemes, often mandated by planning permissions and section 106 agreements.

When the Energy Act came into force, the Climate Change Committee estimated that, to deliver carbon targets cost effectively, heat networks could provide around 18% of UK heat by 2050, up from c.2% at the time—underscoring the importance of robust regulation.

Heat Network Regulations

The Heat Networks Regulations, made under the Energy Act, will regulate two core activities: (i) operating a DHN; and (ii) supplying heating, cooling, or hot water through a DHN. Persons carrying out either activity will require authorisation and must comply with applicable rules.

The regime will introduce: mandatory authorisation for operators and suppliers; consumer protection obligations, transparent billing and accessible complaints handling; and technical and performance requirements under the Heat Network Technical Assurance Scheme ("HNTAS"), aimed at improving efficiency, reliability and emissions performance. Enforcement powers will include directions, penalties for breaches, and criminal sanctions for unauthorised regulated activities.

The final form technical standards are yet to be published, but the widespread expectation is that many existing DHNs will require significant upgrades to meet the requisite standards. It is important, therefore, that those acquiring or investing in developments with DHNs should consider what upgrades may be required and the capital expenditure implications. Reputational issues may arise if the costs of upgrades are required to be forced down to leaseholders.

Timeline

• The transition began in April 2025 with consumer advocacy and advice services to provide impartial information and support for DHN customers.
• From 27 January 2026, Ofgem's regulatory role will formally begin and the initial rules and consumer standards will apply. DHN operators and suppliers must meet those requirements from this date, subject to transitional provisions.
• All DHNs in operation before 26 January 2027 will be automatically authorised ("deemed authorisation") for a limited period.
• Existing operators benefiting from deemed authorisation must formally register with Ofgem by 26 January 2027. From 26 January 2027, authorisation will be granted only on application, and it will be unlawful to operate a DHN or supply heat, cooling or hot water without prior authorisation.
• By early 2027, Ofgem intends to have published the full rulebook for operators and suppliers, including pricing rules and "Guaranteed Standards of Service." Over time, this is expected to deliver more consistent service quality and a clearer route to accountability where DHNs fall short.

Practical Considerations

Real estate owners, developers, investors, landlords and in particular DHN operators should familiarise themselves with the regulations and prepare a plan for compliance.

Early action will reduce the risk of non-compliance and avoid disruption to development projects and existing operations as the regime goes live.

1. Begin by confirming roles. Determine whether you (or entities in your group) are an "operator" and/or a "supplier" for each DHN. Consider where responsibility lies and ensure the correct entity is authorised, registered, and accountable for compliance and reporting.
2. Plan for authorisation. For existing DHNs, prepare registration packs for deemed authorisation and identify any conditions that will apply on a transitional basis. For new or expanded DHNs coming onstream from 2026, factor authorisation timelines and conditions into development programmes and commercial contracts.
3. Address technical assurance. Audit compliance with the HNTAS requirements and develop an improvement plan to address any technical and operational shortcomings. Put in place robust monitoring, data quality controls, and benchmarking to support certification and ongoing assurance.
4. Upgrade customer systems and documentation. Ensure billing and customer communications are clear, accurate, and timely; implement complaints procedures that meet the regulatory standards; and signpost the Energy Ombudsman (as the official dispute resolution body for DHNs). Review customer contracts, heat supply agreements and landlord/tenant arrangements for change in law mechanisms, service levels and data sharing.
5. Integrate the new regulations into transactions. For acquisitions, disposals and development funding, build DHN due diligence into workstreams, including authorisation status, HNTAS readiness, asset condition, pricing approach, and consumer outcomes. Reflect the regulatory obligations and cost recovery into the commercial terms, any handover protocols, and the O&M arrangements.