Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations 2025

Debate between Lord Whitehead and Baroness Bennett of Manor Castle

Monday 15th December 2025 Grand Committee

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

My Lords, these draft regulations were laid before the House on 30 October.

Heat networks have a crucial role to play in our decarbonisation ambitions and energy security mission. As proven internationally, they can provide low-cost, low-carbon energy for all, particularly in high-density areas such as our major cities. They are one of the most versatile forms of renewable energy, as they can access heat from a variety of sources, including waste heat from growth sectors such as AI. This potential has fuelled government ambition. By 2050, we aim to grow heat networks from the current 3% of the UK’s heat demand to around 20%.

However, the growth of this sector depends on consumer trust, underpinned by good regulatory foundations. That means we must deliver a fair deal for the nearly half a million households that already rely on a heat network. The current lack of regulation means that many people are experiencing poor customer service, with unreliable heating and a lack of clarity on what makes up a bill. This cannot continue. That is why, for the first time, we are establishing a regulated market framework to protect heat network consumers that supports the case for sector growth.

Earlier this year, when this House approved the Heat Networks (Market Framework) (Great Britain) Regulations 2025, we paved the way for consumers on a heat network to receive protections comparable to those in gas and electricity markets. The powers for the Secretary of State to introduce these regulations were provided by the Energy Act 2023. They will apply across Great Britain. We have also consulted the Scottish Government, as per Section 220 of the Energy Act. I thank them for their support in this matter. These regulations do not apply to Northern Ireland; the Northern Ireland Executive have their own powers to introduce regulation.

The regulations made in March introduced the authorisation regime. This will work in a similar way to the domestic gas and electricity licensing regime. From regulatory commencement, Ofgem will have the powers to investigate and take action in cases of unfair pricing, establish protections for vulnerable customers and require suppliers to put in place robust complaints-handling processes. It will also be a requirement on heat network suppliers to treat their customers fairly. This instrument is therefore the last piece of the puzzle that will enable this market framework to go live from 27 January.

The instrument simply builds on previous regulations by introducing amendments that will expand the authorisation regime that Ofgem will implement. The changes include the provision of powers to Ofgem to assist with the conduct of pricing investigations, which will be essential to protect customers from unfair, high and opaque prices. It will also introduce deemed contracts to ensure that the rights of households and their supply of heat are protected even when no formal contract is in place.

Noble Lords may also note that this statutory instrument includes provisions to protect consumers if a heat network becomes insolvent. A special administration regime, or SAR, will seek to ensure that customers do not experience interruptions to their supply of heating and hot water in the event of a heat network operator or supplier insolvency. The rules for this will be set out in separate statutory instruments that will be put forward to this House in future.

The instrument also makes it clear that air conditioning systems will be explicitly excluded from the scope of these regulations, as we believe that including them would not be proportionate or in the interests of consumers, and air conditioning systems normally stand aside from the heat network itself.

In addition to the above, these amendments include provisions to partially revoke parts of the Heat Network (Metering and Billing) Regulations 2014. This is designed to avoid duplication in legislation, as there are some existing requirements and obligations on heat supplies in the metering and billing regulations that will now be streamlined rather than entirely removed.

Finally, these amendments make changes to the scope of the Energy 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.

I wish to make noble Lords aware, by the way, 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. Officials will ensure that this error is rectified as soon as possible through the medium of a negative statutory instrument in the very near future.

We have committed to maintain minimum technical standards, which will be a key part of the market framework, and we aim to consult on proposals shortly. However, to be clear, these are not in scope of this statutory instrument and draft regulations will be brought forward to this House in due course.

I understand that four public consultations dating back to February 2020 have informed these regulations, which have helped the department to develop the final market regulation proposals. The detailed Ofgem authorisation conditions and associated guidance are still being consulted on and will be published before the authorisation regime commences on 27 January 2026.

In conclusion, this instrument and the one made in March will enable the Government to do what has never been done before, as we introduce regulation to the heat network sector. The only way to realise the Government’s growth ambition for heat networks is to ensure that customers can trust heat networks to provide safe, reliable and cost-effective heat. These regulations therefore represent a huge step forward, providing heat network consumers with much-needed protection similar to that in other utility markets that already exist. We must get on with the job and introduce the final elements of the market framework that will not only help to drive up consumer standards in this sector but help to promote market growth. I beg to move.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I thank the Minister for his clear and comprehensive introduction to this SI and I welcome the fact that we are getting this long-overdue regulatory framework for heat networks. I agree with him that they are an important part of our energy future. Based on renewable and low-carbon emissions, they can give people reliable, secure energy supplies to meet their heating needs.

My questions are based on a report from Citizens Advice in July this year, titled System Critical: No Margin for Error in New Heat Network Rules. That “no margin for error” is why we are here interrogating this. As that reports outlines, and as the Minister said, since the rising price of gas after Russia’s invasion of Ukraine, we have seen serious problems in this sector.

My first question relates to what the Minister said about regulatory commencement on 27 January. The report says that Ofgem

“must outline the standards expected”

from providers, how it will act

“to improve systems and processes”,

and how it will deal with some of the terrible behaviour we have seen from some of the providers. Given that 27 January is not far away at all, my question to the Minister is: how prepared is Ofgem to act on this? We will of course already be in the middle of winter and people will already be accruing bills, which will be a real issue.

My other question relates to my personal experiences, particularly with Camden council estates. We know that many heat networks were installed in the 1960s and 1970s and have lots of problems, including that they are not controllable. People find themselves being heated even when they do not wish to be heated. There are real problems with controls, systems, leakage and all those kinds of issues. I am interested in the Minister’s view of how those issues will be addressed under this framework.

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[Lord Whitehead (Lab)]

I thank noble Lords for their valuable contributions to this debate. A number of them go to the heart of why we are doing what we are doing today: the question of the state of many of the older heat networks that exist in this country. They are very far from the sorts of standards that we would expect to bring forward in new heat networks, and they have often operated with very sub-optimal arrangements for many years, to the considerable detriment of customers.

Therefore, the regulatory regime that we are introducing should give an enormous amount of succour to those who have suffered under those heat networks over a long period. As mentioned by the noble Baroness, Lady Bennett, there are heat networks from the 1960s and the 1970s which simply have not updated what they do, and they will be held accountable for what they do in these networks by the new regime under Ofgem. Ofgem can introduce fines for the systems if they are found wanting and, as a measure of last resort, can ensure that those networks are transferred to the running of another organisation entirely.

The noble Baroness, Lady Bennett, also mentioned the report encompassing a number of these issues from Citizens Advice, and that is why its work as a consumer champion is so important. I can assure the noble Baroness that Ofgem will be ready for regulatory commitments. It has raised no questions about its capacity to introduce these regulations and to make sure that they work to maximum capacity from day one. Ofgem will, however, take action such as collecting pricing data and various other things to refine how the regulations may work over the early period of their operation.

I can assure the noble Baroness, Lady Bloomfield, and the noble Earl, Lord Russell, and all the noble Lords who raised concerns, that Ofgem will therefore be ready for regulatory commencement. Ofgem will be publishing what methodology will be used to determine reasonable pricing. This has recently been consulted on by Ofgem. However, the exact benchmark of what is considered fair pricing will not be published first, so that heat networks do not move their prices to the top of that benchmark.

Overall, therefore, I assure noble Lords that the scheme will work to the best of its design and ability from the word go and will properly encompass all the many and varied types of heat network we have in operation, with a view to bringing them all up to the same standard, rather than down to the same standard, for the future. Indeed, the instrument simply builds on previous regulations by introducing amendments that will expand the authorisation regime that Ofgem will implement. We have also heard mention of deemed contracts, which will be in place to ensure that the rights of households and their supply of heat are protected, even when there is no formal contract in place.

I am sure noble Lords will want to join me in thanking the District Energy Association heat authority, which tried to put a voluntary system into operation to secure compliance and uprating of systems. That has worked for 10 years. In itself, it has worked very well, but it encompasses only part of the heat network arena. This will cover everybody, so it will be a great step forward in that respect.

On the question of consultation, I understand that the four public consultations that have already taken place, dating back to February 2020, have informed the regulations, but the detailed Ofgem authorisation conditions and associated guidance are still being consulted on and will certainly be published before the authorisation regime commences on 27 January.

In conclusion, I consider that these regulations, which will include the most vulnerable, will now make sure that pretty much everybody enjoys statutory protections. Heat networks are indeed the future, and we must do everything we can to support their growth and instil confidence in that growth as it takes place. Sound and proportionate regulation is therefore central to delivering this and I beg to move.

[Baroness Bennett of Manor Castle (GP)]

One of the responses provided by the Minister provoked a question in my mind; at this point, I should perhaps declare that I am a vice-president of the Local Government Association.

The Minister said that there would be fines for systems—we were talking in particular about those long pre-existing, 1960s and 1970s-type systems—and that they could potentially be transferred to another authority. Of course, many of these systems will be owned and run by either councils or arm’s-length organisations that used to be owned by councils or housing associations. I will understand if the Minister wants to write to me, but are the Government considering the fact that many of these will not be commercial providers?

[Lord Whitehead (Lab)]

The noble Baroness makes a good point in relation to what are, as I have said, a huge number of systems of very different quality and status. Making regulations in respect of those sorts of bodies is very difficult, because they are all mini electricity or gas networks in their own right; indeed, they are mini networks that could fall by the wayside if they are regulated in a way that is not sympathetic to their particular arrangements. Noble Lords can see, I think, that these arrangements do not exactly coincide with what is in the existing gas and electricity sectors, but do try to take account of those particular circumstances.

Within that, there is a serious bottom line: these bodies must provide good value for their customers, provide good levels of redress and ensure that they are operating to the best of their capacity. Those are the sorts of things that Ofgem will ensure are looked at and regulated properly, with an eye on the fact that heat networks are not in the same position as electricity and gas networks. That bottom line is there in these regulations and should not be set aside easily. Otherwise, Ofgem will certainly be doing the business of ensuring that those bodies work properly.

I think there is nothing further for me to say, other than that I commend these regulations to the Committee. I hope, by the way, that what I have said this afternoon satisfies the noble Baroness, Lady Bennett, as far as her question is concerned; if she has any further concerns, I will be happy to write to her.

COP 30

Debate between Lord Whitehead and Baroness Bennett of Manor Castle

Wednesday 3rd December 2025 Lords Chamber

[Baroness Bennett of Manor Castle (GP)]

My Lords, I join other noble Lords in welcoming the new Minister to your Lordships’ House and to his role, and welcome particularly his response to the noble Lord, Lord Offord.

Central Hall Westminster on the morning of 27 November was very crowded. I did not see the Minister there and I appreciate that he had many other things to be doing at the time, but that of course was when the National Emergency Briefing to which the noble Earl, Lord Russell, referred was being held, when 10 of the UK’s leading scientific experts spoke to the packed hall, addressing our interrelated climate and nature emergency. Given the, I am afraid, limited outcome of COP, particularly in the failure unanimously to agree the road map on transitioning away from fossil fuels, those experts asked for a televised emergency briefing to the nation to explain to the country the urgency of the crisis that we face. Are the Government prepared to support that call and act on it? What else are the Government planning to do to highlight the reality of the emergency situation we are now in, as demonstrated by the dreadful floods in Asia—Sri Lanka, Indonesia and Thailand—where the death toll is already more than 1,400?

[Lord Whitehead (Lab)]

The noble Baroness is quite right that we are seeing in front of us right now all the things that the scientists said were going to happen. They have been proved absolutely right. So the first thing we need to do is stick to the science, make sure that whatever we do is in line with the science and explain that science to the country in a very clear way: if we do not do these various things, we can already see the results of inaction in front of us. While I cannot commit this evening to a national televised discussion on how we go forward, what I can commit to is the continuation of the attempt by this Government to explain very clearly what they are doing, for example, on clean energy and why that is absolutely essential to keeping our hopes of 1.5 degrees open and making sure that as a result of that—for the episodes that we are now seeing, a lot of this is baked in, obviously, to the climate warming we have already—there is the possibility of a better, safer, cleaner and more prosperous world in the future.

--- Later in debate ---

[Lord Whitehead (Lab)]

It is because the model of how renewables develop is precisely the opposite of how fossil fuels develop. They are very capital-intensive and, after that, the power that comes from them is, in essence, free. Therefore, we need to establish, through capital support in particular, those renewable arrangements which can give us in perpetuity that cheap power for the future. These things in essence are not subsidies; they are investments in how that power reaches us for the future. I am sure, as the noble Lord, Lord Lilley, and I have had debates in the other place, that this discussion will continue, but I very much stand by my view—and accept he stands by his view—that non-fossil fuel power is inevitably going to be cheaper, more secure and more reliable than the fossil fuel economy we have at the moment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, since there is time, I very much appreciated the tone and the energy of the Minister’s response to my initial question, but that, and all our discussion, very much focused on the energy side of tackling the climate emergency. I hope the Minister will agree that, as was stressed at the National Emergency Briefing, the climate emergency and nature crisis are intimately interlinked. At that briefing, Professor Nathalie Seddon, professor of biodiversity at the University of Oxford and founder of the Nature-based Solutions Initiative there, spoke about the incredibly parlous state of nature in the UK and the impact that is having on human health as well as on the climate. Can the Minister reassure me that the Government really are focused on and understand that interlinkage between nature and climate?

[Lord Whitehead (Lab)]

Indeed. At COP 30, the essential integration of nature and climate change was emphasised both in the communique at the end and during discussions. I can assure the noble Baroness that the UK Government are absolutely alive to this. In terms of investment in nature funds, we have shown practically that we are willing to, as it were, put our money where our mouth is and make sure that we are full players in the international integration of nature and climate change action.