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Publications / Blogs

Towards a roadmap for heat networks

A heat network is a distribution of insulated pipes that delivers heat from a central source to connected buildings, including residential, public sector and non-domestic properties. This central source generates heat via a range of technologies, including natural gas, a heat pump or using waste heat from local industry. In the future, heat networks could be supplied by hydrogen, use large-scale heat pumps, be fully electrified or could use a combination of low carbon technologies.

Owing to this adaptability, heat networks represent a no and low-regrets infrastructure investment to provide efficient, low-carbon heat to dense urban areas as part of the UK’s transition to Net Zero carbon emissions.

Heat networks now and in the future

There are approximately 480,000 heat network customers in the UK, including 446,517 homes, being serviced by 14,000 heat networks and 3,000 different providers. This technology meets around 2% of current total heat demand for the UK. Almost all use a fossil fuel-based primary fuel source.

As part of the UK’s trajectory to decarbonise buildings and reach Net Zero carbon emissions by 2050, as well as the recently announced target to reduce energy consumption from buildings and industry by 15% by 2030, heat networks are set to play a growing role in the supply of low-carbon heat to homes, non-domestic buildings and the public sector.

Against the backdrop of the gas price crisis, low-carbon heat networks also represents a means of addressing affordability issues by supplying energy cost-effectively, and at fair prices, to consumers.

Heat networks can also support system flexibility where they have centralised thermal storage attached or use multiple heat sources, allowing them to shift demand. Together with opportunities to utilise waste heat, this can help achieve efficiencies across the power system and reduce emissions.

The ‘Balanced Net Zero Pathway’ set out in the Climate Change Committee (CCC)’s Sixth Carbon Budget estimates that 19% of low-carbon heat installations in 2030 will be heat networks. By 2050, 20% of heat could be distributed through heat networks, but only if we address the uncertainty in the market.

The roadmap between existing heat network infrastructure, and this ambitious vision for 2050, could attract between £30 – £50 billion investment into the UK, directly creating between 20,000 and 35,000 jobs, while also supporting local regeneration and levelling up.

Policy progress

These forecasts help to send strong signals to the market and, the Government has correspondingly taken steps to bring forward a supportive and enabling policy framework to attract investment into the UK.

This includes the draft measures in the tabled Energy Bill, a critical piece of legislation which includes powers to require local authorities, at various levels, to identify and designate zones suitable for heat networks by 2025. The Bill will also introduce powers for Ofgem to regulate heat networks, including through pricing, consumer protection, technical standards and a licensing regime that permits activity such as street works or use of land.

Heat networks have long been neglected in regulatory terms, and the sector welcomes the fact that Ofgem will monitor compliance and be given powers under the Bill to take enforcement action where they are not meeting the required standards. The Bill also provides the Secretary of State with powers to introduce price regulation, including a price cap. There will also be additional measures to support routes to redress for consumers.

Alongside this regulatory approach, HM Treasury’s 2021 Business Rates Review introduced 100% business rates relief for low-carbon heat networks, to support green investment in the decarbonisation of non-domestic buildings. Capital funding has also been announced by UK Government, including a £320 million Heat Networks Investment Project, that has supported the construction of heat networks across England and Wales and its successor, the £288 million Green Heat Network Fund which also provides streamlined access to the UK Infrastructure Bank’s £4 billion local authority lending product for councils undergoing the application process.

A £32 million Heat Network Efficiency Scheme was also announced in 2022 and is designed to support upgrades to out of date equipment, generating bill reductions for consumers.

Towards a roadmap for heat networks

These policies represent important steps in building the enabling framework needed to attract investment into the UK, however, significant escalations are needed from existing levels of funding in order to reach the scenarios modelled for 2050.

Indeed, the Rt Hon Chris Skidmore MP’s Net Zero Review calls for more support for heat networks, potentially using innovative technologies such as mine water heat projects or geothermal energy, and a particular focus on re-using waste heat. The review calls for the Green Heat Network Fund to be extended to 2028, and scaled-up over time.

Working alongside industry, Government must now identify barriers to private investment in heat networks, and bring forward measures that remove these, unlocking not only a significant economic opportunity but also access to more affordable energy bills for consumers.

Key considerations to unlock additional investment into heat networks

The Government is looking for construction to start on heat zones from 2025, which represents an extremely ambitious timeline in terms of completing procurement processes and construction. Questions remain over what the requirements will be to connect to the network, be it in terms of ‘anchor-load’ customers like large commercial or public sector buildings, or industrial producers of waste heat that are obliged to connect and funnel that heat into the network.

Heat networks represent a new approach to heating for most UK households, and therefore engagement with consumers about the value of this infrastructure will be a key component of reducing barriers to planning, investment and deployment. Through their role as Zoning Coordinators, local authorities will play a vital role, in partnership with the private sector, in communicating the benefits of heat networks, including local job opportunities, and explain why construction is taking place in the local area.

What’s more, positive consumer experiences of those on existing heat networks will also help stimulate demand for customers to connect to forthcoming networks. Improving the performance of existing infrastructure, and ensuring that consumers that are already serviced by heat networks are adequately supported in response to rising gas prices, will help build public support for future investments.

Ofgem as the regulator will need to be agile and responsive, and open to working closely with industry to implement change for the benefit of consumers and efficiencies within the system. Ensuring that Ofgem has adequate resourcing and capacity to manage this process will be essential.

Taking a step back, high-level and locally-led strategies for decarbonising buildings, supported by a central government framework, will help provide clarity to investors and make the essential connection between construction of heat networks and related issues, such as the urgent need to improve the energy efficiency of existing buildings. To this end, heat zoning is the first step toward coordinated Local Area Energy Plans, an important tool for setting out the roadmap for decarbonising buildings in communities.

This list of interventions could significantly boost investor confidence, engage consumers in the journey to Net Zero, and deliver significant carbon reductions across the UK.