The Government published its response to the Ofgem and DESNZ consultations on implementing consumer protections and the authorisation regime and regulatory oversight. These consultations ran from November 2024 – December 2025 and covered key proposals on consumer protection requirements.
With heat network regulation set to launch on 27 January 2026, certainty on regulatory protections is key. This article examines the Government response to the consultations and key changes from the original proposals.
Regulated activities
Authorisation conditions set by Ofgem will apply to any person undertaking "operation" or "supply". Although most authorisation conditions will take effect from January 2026, more complex regulatory activities (such as pricing and standards of performance) remain subject to further consultation.
The "operator" will be the asset owner (or entity with significant control over network infrastructure), that has the ability to invest and direct repairs and maintenance in the network. The "supplier" is the entity with a heat supply contract (or equivalent) with customers for the supply of heating, cooling or hot water. In most cases, the regulated "operator" and "supplier" will be the building owner (unless an ESCO has been appointed to supply customers directly and has significant control over the heat network assets).
Consultation response – Key proposals
- Scope of Regulation: Further clarification has been provided on the types of heat networks subject to regulation and specific protections afforded to those customers. That includes introducing definitions for industrial networks, self-supply networks and shared ground loop (SGL) networks. SGL heat networks will fall within scope of the regulation, although certain consumer protections will only apply to networks that charge an access fee.
- Bulk Supply: Authorisation conditions will require bulk suppliers to comply with consumer protection measures, including standards of conduct, guaranteed standards of performance, complaints handling and step-in. This is intended to protect consumers from poor performance of an upstream network (which the downstream network may not be able to rectify) and ensure regulation does not penalise the entity with the direct customer-relationship. This will be particularly important when heat network zoning is introduced, although it does not negate the need for robust bulk supply contracts to ensure that offtakers can meet consumer outcomes.
- Step-in Measures: The Government has withdrawn proposals for contractual step-in and a Last Resort Direction process. The consultation proposed a hierarchy of measures to protect consumers from heat network failure in the event of operator insolvency (or where an authorisation is revoked). Following concerns raised from respondents, the Government has abandoned these policies and will instead rely solely on the Special Administration Scheme which will only be used in cases of insolvency where the Secretary of State determines that it is necessary.
- Guaranteed Standards and compensation payments: Guaranteed Standards of Performance (GSOPs) will not form part of the authorisation conditions from January 2026 and will be developed under further consultation. Following concerns raised by respondents, particularly around funding and exemptions for "not-for-profit" landlords, compensation payments will not be introduced. Ofgem are keen that existing compensation policies (such as those that follow Heat Trust minimum standards) should remain in place, and any future policy would aim to ensure consistent compensation payments for all heat network consumers.
- Heat Supply Contracts: Consumers must have a "supply contract" with a heat supplier. This does not need to be a standalone document – the authorisation conditions confirm this can also include a lease, tenancy agreement, service charge agreement or other agreement between the heat supplier and the consumer. For heat suppliers that rely on the terms of a lease or tenancy agreement, existing housing and Landlord and Tenant legislation contradicts several proposals under Ofgem's authorisation regime, including the 12-month back-billing restriction. Ofgem intend to work closely with the Ministry of Housing, Communities and Local Government to understand the interaction with regulatory proposals and what changes to existing legislation may be required in future.
- Unbundling heat charges: The consultation proposed "unbundling" heat from other service charges and requiring individual heat consumption to be separated from service charges, rent and maintenance charges. The aim was to protect customers against evictions and forfeiture for non-payment of heat charges under Landlord and Tenant legislation. Although Ofgem intends to proceed with "unbundling" heat charges, this will not apply to any networks covered by the Landlord and Tenant Act 1985. This means that certain landlords will not be subject to the same requirements as other heat suppliers.
- Vulnerability: The definition of "vulnerability" will be aligned with the approach under gas and electricity markets and all authorised heat network suppliers will be required to provide additional protections for vulnerable consumers, including safeguards around prepayment meter installation and protection from disconnection for non-payment in certain circumstances. This may be difficult for heat suppliers to monitor, particularly where pay-as-you-go meters are already installed.
- Enforcement: Ofgem has published a separate consultation on the draft Heat Networks Enforcement Guidelines and Heat Networks Penalty Policy. This proposes to introduce fixed penalties for non-compliance, with the ability for Ofgem to audit regulated entities. Annual reporting on the financial standing of regulated entities will also be required.
Next steps
Further consultations and responses on technical standards, heat zoning and pricing are expected to be published in the next few months, with a wave of consultation on new guidance expected in the lead-up to January 2026.
If you have any involvement with a heat network, it is vital to check how regulation will apply to you, whether you will be considered a heat network "operator" or "supplier", and how to prepare for any new or existing schemes.
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.
Our Energy and Sustainability team advise a wide range of clients on district and communal heating and cooling projects, including property developers, landlords, local authorities and commercial and industrial off-takers. We advise on the full suite of contractual documents and provide early advice on phasing and procurement, risk management exercises and management of negotiations through to finalisation of contracts.
