Heat Networks Authorisation Conditions

Heat Networks are novel heat distribution method, where heating and cooling is sent from a central source to multiple users. They are a key element of the UK's net zero strategy but are currently unregulated.

To ensure that the UK heat network market can grow to meet consumer needs, regulation was introduced under the Energy Act 2023 which appointed Ofgem as the regulator. Ofgem is now working to establish a Market Framework which will include rules on Consumer Protection, Metering, Step-in and Technical Standards.

Similarly to how the gas and electricity market is regulated, heat suppliers and operators will be authorised to operate heat networks. Requirements will subsequently be implemented through authorisation conditions, which will be legally binding and Ofgem will be able to take compliance action to enforce.

The Department of Energy Security and Net Zero (DESNZ) had commissioned the initial draft of the first batch of Ofgem will need external legal support to amend the first batch of Authorisation Conditions following the closure of the consultation, as well as requiring support to review existing drafts of the outstanding Authorisation Conditions and to draft Authorisation Conditions where no draft currently exists. Ofgem expects there to be around 16 Authorisation Conditions in this second batch. Ofgem also requires support in drafting Installation and Maintenance Licence Conditions and the Scottish Heat Networks Licence Conditions. Ofgem expects each set of Licence Conditions will include fewer than 10 Licence Conditions (fewer than 20 Licence Conditions in total).

As these conditions will be legally binding and enforceable via powers set by the Energy Act 2023 (and subordinate legislation), these conditions must be drafted by lawyers. This is to ensure that conditions set are within the scope of authorised activity, and ensure that conditions are clear, legally unambiguous and can achieve their aims without having unintended consequences or opening Ofgem to legal challenge.

It is envisaged that the following tasks will be required from a supplier:

• Reviewing and amending batch 1 conditions
• Drafting of new conditions
• Reviewing and amends following policy consultation
• Drafting of Installation and Maintenance Licence Conditions
• Drafting of Scottish Licence Conditions
• Reviewing and amends post potential statutory consultation