With Ofgem's authorisation conditions set to take effect on 27 January 2026, Megan Coulton and Johnston Tan outline 12 essential tips to help heat network operators and suppliers get regulation ready.
Ofgem's authorisation conditions will come into force on 27 January 2026 and will impose certain minimum consumer protection, transparency and reporting conditions on 'operators' of heat networks and 'suppliers' of heat and hot water. The regulations have wide application to those in charge of heat networks including owners, landlords, management companies and appointed energy companies and service providers - so now is the time to check how they apply.
Here are our top tips to prepare for regulation:
- Identify existing heat networks: Identify and review all sites where heat, hot water, and/or cooling is delivered through a communal or district network. Identify if the site serves two or more buildings (district heat network) or multiple dwellings within a single building (communal heat network).
- Understand your obligations: Determine whether you fall under the definition of a heat network 'operator' or 'supplier' under the new regulations. In most cases, the building or asset owner will be both the 'operator' and the 'supplier' unless substantial control over operation and/or supply has been given to another Party. It is important to review existing contractual arrangements to assess your obligations. For a deeper dive into these definitions, and the circumstances in which a subcontractor or third-party operator assumes regulatory obligations – see our article here.
- Carry out Technical due diligence: Get started on a technical audit. Draft technical standards (TS1) have been published ahead of full details of the Heat Network Technical Assurance Scheme (HNTAS) which is expected to be published before the end of the year. That will require networks to meet certain minimum standards for performance and reliability. Now is a good time for operators and suppliers to familiarise themselves with the requirements and consider implications (and timescales) for existing schemes and future development. For more information on HNTAS, read our article here.
- Prepare for registration: In anticipation of Ofgem's online registration system, it is sensible to start preparing the information that will need to be provided. That includes the nature of the regulated activities, any contractual arrangements in place, details of the heat networks/sites, organisational information (including financial status, ownership and organisational structure) and details of consumers and relevant billing arrangements.
- Review existing contracts: It is important to consider how existing service contracts operate in the context of the new regulations (and whether appointed service providers assume regulatory responsibility). Many long-term contracts (including ESCO concession arrangements or operation and maintenance contracts) will include Change in Law provisions which govern how the contract may be adjusted to reflect new law and regulation – including how relevant costs are addressed. We recommend operators and suppliers carry out an audit on existing contracts and identify relevant Change in Law provisions. It is important to interpret and implement Change in Law provisions accurately so that existing contracts are compliant with new regulation. For contracts currently under negotiation, the new regulations need to be addressed and clear wording on regulatory risk/compliance and authorisation obligations needs to be included.
- Identify a Nominated Person: The Authorisation Conditions specify that suppliers and operators appoint a person who will make decisions about the management of regulated activities. Operators/suppliers should consider who that person should be and put governance processes in place to ensure they have the relevant skills and authority properly to carry out the role.
- Review billing arrangements: Where heat is supplied and billed separately, those supply contracts will need to include certain mandatory information (such as details of pricing and tariff structure, duration of contract, termination rights, and complaints handling processes). Now is the time to review existing heat supply agreements and billing systems to check they are compliant and are updated where necessary. Where heat is charged via a lease or tenancy agreement, it can continue to be charged in this way where it falls within the scope of the Landlord and Tenant Act 1985. Suppliers need to take care to review existing lease/tenancy agreements and consider whether billing arrangements need to be adjusted.
- Establish a Priority Services Register: The regulations require suppliers to establish and maintain a Priority Services Register for domestic consumers or occupants who may require priority services due to their Personal Characteristics or otherwise being in a Vulnerable Situation (as defined in the Authorisation Conditions). Many landlords will already maintain a register, but it is important to check it meets the requirements of the Authorisation Conditions – and in particular, that robust processes are in place to take all reasonable steps to promote its existence and identify relevant customers.
- Look at data collection/reporting processes: Ofgem intends to require quarterly data reporting in relation to consumer protection and certain financial information. Operators/suppliers should consider internal processes to collect the required data and any associated data protection implications.
- Update Complaints Handling Procedure: Authorised suppliers must have at all times a Complaints Handling Procedure and comply with it in respect of each complaint it receives. We recommend suppliers review existing policies in place and confirm they meet Ofgem's requirements (including being in plain language, available in various formats, that it describes the steps which the authorised person will take with a view to investigating and resolving a Complaint and provide details of the consumer's right to refer the complaint to a relevant dispute resolution body). It is expected that suppliers will also be required to register with a Qualifying Redress Scheme (ie the Energy Ombudsman Scheme or Housing Ombudsman Scheme (as appropriate)).
- Register with the Energy Ombudsman: As above, suppliers are required to register with the Energy Ombudsman. That can be done now ahead of regulation coming into force on the Energy Ombudsman website at the following link: Join our Heat Network Supplier scheme | Energy Supplier Portal
- Create a Risk Register: Regulatory compliance is a key risk for any business. This article details some of the key actions to take but it is likely that this requires significant internal support and management. Create an internal risk register to monitor actions required by relevant parts of the business and ensure regulatory compliance.
If you are concerned about any of the issues raised or how regulation may impact you, please get in touch with a member of our Energy and Sustainability team.
