Energy UK response to Heat Network Zoning Draft Statutory Instrument feedback

Executive summary

Energy UK supports the objectives of zoning, including securing economies of scale in the decarbonisation of heat, to enable greater system efficiencies and lower costs for all energy customers, but especially those on low-carbon networks. Heat network zoning can support growth in the heat networks sector at pace and scale by providing demand assurance and securing investor confidence. The heat networks industry plans to invest £4bn by 2030, and £100bn by 2050, and a supportive regulatory environment is needed to realise this opportunity.

Zoning could play an important role, but it is essential that the cost of heat challenge is resolved. Zoning will only provide the demand assurance and economies of scale that is needed by ensuring that low-carbon networks can offer a competitive price to the gas counterfactual. This is not currently uniformly the case, due to a combination of factors, including: the capital cost of laying pipes in the ground, the UK reporting the highest non-domestic electricity prices in the International Energy Area (source), and the delay between an initial investment and the network only generating significant revenue once a sufficient number of high-demand customers have connected. To resolve the cost of heat challenge, ambitious policy solutions are needed that address these factors.

Furthermore, zoning needs to be introduced alongside an extension of developer rights that are equivalent to the statutory rights that other utilities benefit from, including permitted development rights and Compulsory Purchase Powers. Heat networks are being presented with a significant level of new regulatory compliance both in zoning and in other parts of the regulatory regime, and need equivalent support for the UK to remain an attractive place to develop and draw international capital.

The Ofgem consumer protections framework and forthcoming Heat Networks Technical Assurance Scheme (HNTAS) are important for a modern market with strong consumer trust and investor confidence, but it is essential that the governance of these various regulations, including the zoning regulations, is complimentary and integrated, with disproportionate regulatory burden and duplication avoided at all opportunities.

For zoning, this should include close collaboration between the Zoning Coordinator and HNTAS Code Manager to ensure that achieving HNTAS compliance does not act as a hindrance to the progress of the new networks planning application. This also means that networks in zones should not be subject to pricing regulation that is in addition to the Ofgem Fair Pricing Framework.

Achieving a coherent approach to heat network governance will provide the best outcomes for customers, while preventing investor confusion that risks slowing down delivery.

Local authorities will need substantial support with capacity, expertise and commercial knowledge in order to fulfil the role of the Zoning Coordinator Body, in addition to renewed support for their planning teams. This resource should continue to be provided via the Net Zero Hubs, and increase as required.

The process and Governance approach of Zoning as set out in this Statutory Instrument has not been tested under the Advanced Zoning Pilots. It is therefore important that this process can be iterated, and that there will be ongoing review and improvement of these regulations. The SI should make provision for heat network operators and suppliers, and their representatives, to be engaged within this review process, and the SI should detail a specific role for industry to provide feedback on its position within zoning.