Heat networks compliance approach

The aim of the new regulatory regime is to improve outcomes for heat network consumers, so that they receive:

• fair pricing
• improved reliability of energy supply
• good customer service
• transparent, easy to understand energy bills

The regulations are part of the government’s broader strategy to decarbonise the energy sector and to meet ambitious targets for heat provision.

Ofgem’s regulatory framework

We’re introducing a stable, regulatory framework that drives improvements in customer outcomes. This framework will also help support investment and innovation.

Our priority in the first year is to get a good understanding of the sector.  This will lay strong foundations for the long-term standards we expect to see.

We’re taking a principles-based, outcomes-focused approach that balances flexibility for operators and suppliers with improvements for customers. Our aim is proportionate, pragmatic regulation that supports compliance and good practice without unnecessary burdens.

As the market matures and evidence grows, we will refine and strengthen the framework.

How we will work with heat networks on issues

We aim to:

• find out about any non-compliance concerns early
• have an open and supportive dialogue with heat network operators and suppliers to fix problems for customers caused by non-compliance - we encourage them to self-report issues through our digital service
• ensure there is a plan to put things right and resolve any issues promptly, (which might, for example, include fair customer compensation)
• be transparent about the issues we’ve seen, to support the sector into compliance

If we have credible information that a supplier or operator might not be following the new rules and this is impacting customers, we'll aim to engage and understand the issue and circumstances. We may ask for more information, share guidance and give them time to respond before considering whether to open a compliance case.

We'll take more serious action where:

• an operator or supplier does not work with us constructively
• there is harm to customers
• we need to deter future non-compliance

In some cases, this may mean that we open a compliance case and we may also refer to our enforcement guidelines.

The authorisation conditions underpinning this regime are designed to be proportionate and cost-effective while driving better customer outcomes.

Challenges in the heat network sector

The heat network sector is diverse covering not only a wide range of operators and suppliers, but also a wide range of heat networks in terms of scale, age and characteristics, including business models and funding. When working with the sector, we recognise that our approach to compliance will have to be mindful of this diversity. 

We also recognise that regulation alone, including compliance activities, cannot address some of the issues arising in the heat networks sector. This may include, for example, the social housing sector, where expenditure on the heat network has the potential to impact on other public services that are provided by that supplier or operator. 

Where we are considering any potential compliance action, we will take into account all the circumstances of the case. Ofgem’s core responsibility is in relation to consumer protection and will not focus on technical standards which will be introduced by government separately.

As a result of existing housing regulations, certain rules will apply to suppliers and operators who are housing providers in different ways such as back billing and unbundling of heat charges and there will also be different protections for vulnerable consumers depending on the size of the individual heat network.

This means that there will be different outcomes for some consumers as the new rules are implemented and as we continue to work with heat networks on improving consumer outcomes. We will engage with government as they look to strengthen the regulations and the broader support framework.