Rory Evans, regional director at LHC Midlands and South East, discusses what social landlords need to know in the face of changing heat network regulations
This year marks a major shift for social landlords that own, manage or are considering connecting to heat networks.
With Ofgem now regulating the sector, and heat network customers able to use the Energy Ombudsman to resolve disputes, social landlords are operating in a very different environment.
Existing heat network operators and suppliers must register with Ofgem through its new digital service, with all heat networks required to be registered by January 2027. The service will become the main route for heat network organisations to provide information to Ofgem and demonstrate compliance.
Over time, Ofgem says the regulations are intended to help customers understand their bills, trust that prices are fair, rely on their heat supply and know how to get help when something goes wrong.
A stable regulatory framework that improves customer outcomes while supporting investment and innovation should be welcomed. But for social landlords, the changes are significant.
They are no longer simply managing communal heating systems. In many cases, they are now operating within a regulated energy market.
According to the National Housing Federation, around two thirds of existing heat networks are owned and managed by social landlords, mostly in the form of communal systems. In practical terms, that often means a shared plant room serving a block or estate, rather than a city-scale district heating scheme.
Understanding heat networks
Typically, heat networks use a central heat source, or multiple heat sources, to supply heating and hot water to buildings through a network of pipes. Some serve individual blocks. Others serve campuses, estates, neighbourhoods or whole districts.
They can be particularly well suited to blocks of flats and apartments, including supported living and older persons’ housing, where there may not be enough space for individual low-carbon heating systems such as air source heat pumps.
There are more than 14,000 heat networks in the UK, supplying heating and hot water to around 500,000 households. Around 85% are communal networks, and around 90% supply residential buildings.
Heat can come from a variety of sources. Alongside gas boilers, which still dominate many existing communal systems, networks can use heat pumps, energy centres, energy-from-waste facilities, industrial processes and so on. One example is data centres, where heat that would otherwise be rejected into the atmosphere can be captured through heat exchangers and transferred into a heat network. There is a lot to be gained.
The potential benefits for social landlords include:
- Cost and space: Well-designed and well-operated heat networks can offer economies of scale and free up space in homes by removing individual boilers.
- Efficiency: Centralised generation can be more efficient than multiple smaller systems, particularly when networks are properly designed, commissioned and maintained.
- Decarbonisation: Buildings are responsible for around 30% of UK emissions, with heating accounting for most of those emissions. Heat networks are expected to play an important role in reducing that carbon impact, especially where they can use waste heat, large-scale heat pumps or other low-carbon sources.
Evidence to avoid penalties
But there is much to manage, and if heat network operators are not compliant with the regulations, Ofgem has the power to impose financial penalties. These can include fines of up to 10% of an organisation’s turnover, or £1m, whichever is higher, as well as redress payments where customers have been harmed.
For social landlords, the first priority is to understand exactly what they own, manage and are responsible for.
For those already operating heat networks, that means identifying every network across their stock, confirming whether they are acting as operator, supplier or both, and checking whether existing contracts with managing agents, metering providers, billing agents and maintenance contractors are still fit for purpose under the new regime.
The next priority is evidence.
Landlords will need reliable data on customers, meters, tariffs, outages, heat losses, complaints, vulnerable residents and service performance. Without that information, it will be difficult to demonstrate compliance or respond confidently if residents, Ofgem or the Energy Ombudsman ask questions.
3 steps to help navigate the regulations
A heat network is obviously not just a plant room project; it is a long-term regulated heat service. So for new schemes or connections, procurement must look beyond installation cost.
Specifications need to test design quality, resident billing, long-term maintenance, carbon performance, customer service, technical standards and whole-life cost.
In my view, social landlords should consider three key steps:
- Establish your current position. Before procuring new works, landlords should map their existing heat networks, responsibilities and contracts. They should understand which schemes are in scope, who is responsible for operation and billing, how tariffs are calculated, how complaints are handled, and whether residents are receiving the information they need.
- Test technical and regulatory readiness. Whether improving an existing system or connecting homes to a new network, landlords need to be confident that the design, metering, billing, maintenance and customer-service arrangements are robust. That includes considering connection points, network capacity, operating temperatures, heat interface units, on-site pipework, commissioning, monitoring and long-term maintenance. It also means procuring suppliers who understand the regulatory environment, not just the installation works.
- Procure for whole-life performance. The cheapest works package will not necessarily produce a compliant, efficient or resident-friendly heat network.
Social landlords should look for Gold Standard procurement routes that test technical competence, customer outcomes, whole-life cost, carbon performance, data quality, aftercare and regulatory understanding.
This is where expert procurement support can make a difference.
Our Retrofit and Decarbonisation (N9) Framework is divided into six workstreams, the fourth of which is Heating and Ventilation Systems. It includes advice and support across:
- Commercial and communal heating systems
- District and network heating systems
- Domestic boiler-based heating systems
- Domestic renewables space heating systems
- Electrical heating systems
- Building ventilation systems
The available options allow for installations of different sizes and complexities, including communal and district heating systems, and cover heating and ventilation works across social housing.
Behind each LHC framework is a team of specialists who can help clients navigate procurement, technical requirements and changing regulation.
So it need not feel like a journey into uncharted waters. With the right preparation, evidence and procurement support, it can be a much easier crossing.
Find out more about LHC’s N9 framework at: https://lse.lhcprocure.org.uk/all-frameworks/retrofit-and-decarbonisation-n9/
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