Heat Networks: Modelling Technical Efficiency and Costs (Engineering and Economic Adv

Government is legislating to introduce statutory regulation for the heat networks market. They will appoint Ofgem as the regulator. All heat networks will be required to provide notification to Ofgem to be authorised, this means that all domestic consumers and micro-businesses will be protected by the regulatory regime, including consumer protections on pricing, transparency, and quality of service. Heat networks will also need to meet minimum technical standards and decarbonisation rules under the authorisation regime.

Ensuring consumers receive a fair price and undertaking price investigations where Ofgem is concerned prices are disproportionate will be particularly challenging, given the scale and diversity of the heat networks market. The current winter challenges due to the gas price increases also means this is an area where there will be an increased focus. It is important for Ofgem to have good understanding about the impact that inefficiencies in some heat networks can have on pricing.

Ofgem are seeking consultancy support to help better understand the relationship between technical efficiency and the costs of a heat network. This support will also include engagement with Government on the design of a technical assurance scheme to inform its design. This work will also inform Ofgem's understanding of how to compare or segment the market, and how these factors affect the price that heat networks customers are charged. Ofgem require modelling which can be added to and update with real data once this is available.

The likely output is some type of excel model that can be further developed and a report summarising the overall findings of the work.

Please see attached 2022-158 Heat Networks ITT document for further information.