Draft Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations 2025
(1 day, 7 hours ago)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Martin McCluskey)
I beg to move,
That the Committee has considered the draft Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations 2025.
It is a pleasure to serve under your chairmanship, Sir Alec. Heat networks are a pivotal part of our mission to achieve net zero. They are proven to be the most affordable low carbon heat solution in high-density areas, and they can access heat from a variety of sources, including waste heat from growth sectors such as artificial intelligence, which will support energy resilience in an uncertain world. That potential has fuelled Government ambition, and by 2050 we aim to grow heat networks from the current 3% of the UK’s heat demand to 20%. For that ambition to be realised, consumers need to know that they can trust heat networks to provide safe, reliable and cost-effective heat. That starts by ensuring that the nearly half a million households that already rely on heat networks are getting the best possible levels of service.
As the Minister for Energy Consumers, I have met people who are experiencing poor customer service and frequent outages, and people who have been left frustrated by poor communication and opaque prices—most recently two weeks ago in Edinburgh. There can be no greater motivation to get on and put in place a market framework that delivers for all heat network consumers. The Energy Act 2023 provides powers for the Secretary of State to introduce regulations to apply in Great Britain. As per section 220 of the Energy Act, we have consulted Scottish Ministers on these regulations and we have their support in this matter. These regulations, as Members will know, do not apply to Northern Ireland. The Northern Ireland Executive have their own powers to introduce regulation.
In March, when this House approved the Heat Networks (Market Framework) (Great Britain) Regulations 2025, we took the first step in ensuring that consumers in a heat network will receive protections comparable to those for gas and electricity. Those regulations introduced the authorisation regime, which will work similarly to the domestic gas and electricity licensing regime and will provide heat network consumers, including the most vulnerable, with the protections they need and deserve.
From 27 January, Ofgem will have the powers to investigate and take action where heat network prices are unfair, to put in place protections from disconnection for vulnerable consumers, and to establish complaints handling processes and standards of conduct that require heat network suppliers to treat their customers fairly. That is just the start, as we seek for the first time ever to establish a regulated market framework to protect heat network consumers and support sector growth.
This statutory instrument builds on the previous statutory instrument by amending it. The amendments expand on the authorisation regime that Ofgem will implement. That includes the provision of powers to Ofgem to assist with the conduct of pricing investigations. Those powers are essential if Ofgem is to protect consumers from unfair high prices and ensure that price decisions are fully tested and transparent.
Other new requirements include the introduction of deemed contracts for households that are being supplied without an official heat supply contract in place. That will ensure that their rights are protected and they will not have their supply disrupted. Additionally, the regulations include provisions to protect consumers if a heat network becomes insolvent. A special administration regime will seek to ensure that consumers do not experience interruptions to their supply of heating and hot water in the event of a heat network operator or supplier insolvency. The statutory instrument also makes it clear that air conditioning systems will be explicitly excluded from the scope of these regulations. Those systems are different from heat networks, and we believe that including them would not be proportionate or in the interests of consumers.
The regulations include provisions to partially revoke the Heat Network (Metering and Billing) Regulations 2014. This is designed to avoid duplication in legislation, as some existing requirements and obligations on heat suppliers in the 2014 regulations will be simplified and made more user-friendly, rather than removed entirely. Finally, the regulations make changes to the scope of the ombudsman scheme. The addition of small businesses aims to align the scope for heat networks with the scheme’s application in gas and electricity markets.
Members may notice that there is a slight error in regulation 10, which would have the effect of applying a different definition for a micro-business from that in gas and electricity markets. My officials are aware of this issue, and we will ensure that this error is rectified before the authorisation regime comes into effect.
Technical standards for heat networks are a crucial element of the market framework. We have committed to mandating minimum technical standards, and we aim to consult on proposals shortly. However, those are not in scope of this statutory instrument. There will be an opportunity to discuss that in Committee in more detail at a later date when we introduce regulations.
The regulations have been informed by four public consultations dating back to February 2020, in the time of the previous Government. Feedback from those consultations has been crucial in developing the final proposals included in the earlier 2025 regulations and in these ones. The detailed Ofgem authorisation conditions are still being consulted on and will be published before the authorisation regime commences on 27 January 2026.
This statutory instrument is the culmination of years of engagement with the sector, consumers and their representatives. It seeks to introduce the final elements of the heat network market framework, providing better consumer protections and outcomes. That and the wider heat network regulatory regime represent the first big step in providing heat network consumers with equivalent protections to those in gas and electricity markets. It provides regulation proportionate to the size of Government’s ambitions for the heat network sector and its future growth.
Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
It is a genuine pleasure to serve under your chairmanship for the first time, Sir Alec. Congratulations on your appointment to the Panel of Chairs.
This statutory instrument amends The Heat Networks (Market Framework) (Great Britain) Regulations, building on the commitments made in part 8 of the Energy Act 2023—what an Act that was. Heat networks are largely unregulated, leaving consumers vulnerable to expensive heat network contracts with little to no control, since the decentralised heat and water networks are not governed by the same regulation as other utilities. The remaining components of those regulations come into force in January 2026, and along with the Energy Act 2023—with which I am incredibly familiar, having spent hours, weeks and months of my life as the Bill Minister for that legislation—they create the foundation of a regulatory framework.
The statutory instrument establishes a special administration regime for protected heat network companies, designed to maintain essential heating services to ensure continuity of service if a heat network operator becomes insolvent. It mirrors similar arrangements in other regulated sectors, such as electricity and gas. As the Minister said, the statutory instrument also gives Ofgem the powers to investigate disproportionate pricing on heat networks. What guarantee can the Minister give that that will adequately protect the 500,000 homes across the country, including some in my own constituency, that have very little power over the price they pay to be connected to a specific heat network?
The lack of regulation for heat networks has created challenges for consumers. The Energy Act addressed that by introducing a comprehensive regulatory framework for heat networks. Under that Act, Ofgem will become the statutory regulator for heat networks from January 2026. The Act also provided for the appointment of consumer advocacy bodies and ombudsman services, which began earlier this year, and it sets out a staged implementation timeline. From 27 January 2026, the full authorisation regime and special administration permissions will come into effect, marking a significant step towards a regulated market—something that we very much welcome.
Although the statutory instrument is a necessary step towards the regulation of heat networks as set out in the Energy Act, I take this opportunity to reiterate the genuinely desperate situations some of our constituents find themselves in as a result of unregulated decentralised heating, paying extortionate fees with no way out. There have been well-documented cases of consumers facing high cost and limited options under existing arrangements.
With the new framework live at the end of January, it is essential that Ofgem and the Government are fully prepared to deliver effective protections for consumers. I would be grateful if the Minister confirmed what steps are being taken to ensure that the special administration regime will effectively protect consumers, and that the amendments introduced by this statutory instrument are sufficient to ensure fairness. We do not, of course, intend to oppose the regulations, but I emphasise the need for robust implementation to ensure that heat network consumers receive the protections promised under the Energy Act.
Martin McCluskey
I am sure that, having experienced the original work on the 2023 Act, the hon. Member for West Aberdeenshire and Kincardine has a firm grip of exactly what is in here. I am pleased to have been able to relieve him of the burden of the heat network regulations by taking on this role as Minister for Energy Consumers.
On the two points that the hon. Gentleman raises, I am confident both that what we are doing with zoning—that does not apply to Scotland, as he will know—will provide more regulatory power for those who are connecting to heat networks; and that this measure and subsequent regulations will ensure that people are properly protected. I agree with his comments about unregulated, decentralised heating networks. Many Members will have heard from constituents who have experienced real detriment because of a lack of regulation in this area.
As the hon. Gentleman will know, there are more than 12,000 heat networks across the country, many of which are old legacy systems, and other regulations that we will introduce will address some of the legacy issues with older heat networks. However, I am confident that what we have laid out today will provide additional support. Obviously, there will be further detail on the SAR process, but today is about setting out the general principles. The detailed processes and procedures will be delivered through separate instruments further down the line. I hope that that provides him with the reassurance he was looking for.
With the introduction of market regulation to this sector, the Government are doing something that has never been done before. All households that are connected to a heat network, including the most vulnerable, will now enjoy statutory protections. Heat networks, as I said earlier, could play a crucial role in helping to deliver our ambitions to become a clean energy superpower. To support that, we are proposing proportionate protections for current and future heat network consumers. I commend the regulations to the Committee.
Question put and agreed to.