Closed consultation

Heat network zoning: consultation summary

Published 18 December 2023

In 2019 the UK government set a legally binding target to achieve net-zero greenhouse gas emissions by 2050. In 2021, the government laid legislation for the UK’s sixth carbon budget, proposing a world-leading target which would reduce greenhouse gas emissions by 78% by 2035 compared to 1990 levels.

As heating is responsible for about 20% of the UK’s greenhouse gas emissions, meeting our net-zero target will require the decarbonisation of virtually all heat in buildings and decarbonising heat is a key part of the government’s strategy: it underpins the Net Zero Strategy, the Heat and Buildings Strategy and most recently, Powering Up Britain.

Heat networks are an essential part of our path towards decarbonising heat, enhancing energy security and achieving net zero by 2050. They currently provide about 3% of total UK heat. Our analysis shows that heat networks could provide up to 20% of total UK heat by 2050.

The Energy Act 2023 establishes the regulatory framework for heat networks in Great Britain and provides powers to introduce heat network zoning in England through secondary legislation.

On 18 December 2023 the government published a consultation on heat network zoning. This document provides an overview of the definitions, key concepts, and proposals in the consultation.

Aims and objectives of heat network zoning

Under heat network zoning, central and local government will work with industry and local stakeholders to identify and designate areas of England where heat networks are expected to be the lowest-cost solution to decarbonising heat. Heat network zoning will be essential to speeding up the development of new heat networks. By indicating where heat networks are likely to be the lowest cost solution to decarbonising heat, we hope to catalyse growth where it’s most needed.

Heat network zoning will significantly increase private sector investment in the sector by removing the barriers which currently limit the pace of developing large scale heat networks. It will also give local communities the tools to accelerate the development of heat networks in their own areas and ensure that more homes and businesses can have access to greener, cheaper heat. It also has the potential to create tens of thousands of jobs across the country.

Definitions and key concepts

Heat network zone

A formally designated geographical area in England where heat networks are expected to provide the lowest-cost solution for decarbonising heating.

Heat network zoning

The process of identifying and designating areas as heat network zones and developing heat networks within them.

The zoning methodology

Heat network zones will be identified using a standardised national zoning methodology, which the Central Authority (see ‘zoning bodies’ below) will develop. The zoning methodology will consist of two stages: a national mapping exercise to identify potential heat network zones across England, and a refinement stage where local Zone Coordinators will review and refine the outputs with input from relevant local stakeholders prior to designating areas as heat network zones.

The National Zoning Model

This is a data-led spatial energy model developed by the Department for Energy Security and Net Zero (DESNZ) to identify potential heat network zones across England. The model evaluates the low-carbon options for each building (either a low-carbon heat network or an individual building air source heat pump for each building) by combining the mapped data with a standard set of assumptions about technology costs and performance. The model selects the lowest cost technology over a 40-year timespan.

Heat sources

Utilising the heat from ‘recoverable’ heat sources - such as surplus heat from industrial processes or energy-from-waste plants - will be a crucial part of getting low-carbon heat networks operating across England and providing low heat prices to consumers.

Advanced Zoning Programme

As part of this programme, DESNZ is working with a small group of towns and cities to support the construction of new zonal scale heat networks as quickly as possible following the launch of heat network zoning in 2025.

Heat Network Zoning Authority (Central Authority)

A new Heat Network Zoning Authority (the Central Authority) will be established to oversee all heat network zones and co-ordinate heat network zoning across England. It would perform zoning tasks that require a standardised approach across England, including developing and implementing the zoning methodology; having overall responsibility for heat networks being built in zones; managing zoning data and monitoring and reporting on the status of zones. In some circumstances, the Central Authority could carry out the local Zone Coordinator role, should an appropriate local body not be identified. To begin with, we propose that the Central Authority would be established as a unit within DESNZ.

Zone Coordinators

Zone Coordinators will be responsible for local implementation of zoning policy within a zone or zones. They will collect data and refine the zones; appoint zone delivery partners through a competitive process; register zones with the Central Authority; publish information to attract investment; review proposals and enforce zone requirements. The Zone Coordinator would also work together with local authority planning teams to facilitate streamlining with existing planning and building regulations. We are proposing a number of national requirements on the governance structures of Zone Coordinators and the Central Authority would ensure that they met them.

We expect the annual costs of Zone Coordinator teams in local government to be in the millions of pounds. Local government bodies have a range of funding options open to them, but national government recognises that they will require extra funding. This funding may come from a range of sources including central government exchequer funding, the heat network cost recovery mechanism within the Energy Act or from Zone Coordinator consent fees. We are seeking views on these options and will test each option in full.

Proposals

Requirements in zones

Buildings in zones that will connect to heat networks

Zoning will signal to building owners and managers that connecting to a heat network is expected to be the lowest-cost option for decarbonising heat in their area. This would make it more likely that building owners and managers seek out a connection without any further intervention. Zoning would also encourage local authorities and other public bodies to connect their estates to heat networks as a cost-effective way to decarbonise.

However, the economic case and benefits for connecting to a heat network, as well as the option to begin early negotiations, may not be enough to ensure a commitment from a building owner to connect to a heat network.

Alternatively, building owners may agree to connect, but at an inappropriate time for the development of the heat network.

To encourage investment at an appropriate stage in the heat network’s development, and to boost investor certainty, we are proposing a requirement on certain buildings in zones to connect to a heat network. The types of building subject to this requirement will be:

Any new buildings which receive planning permission after the designation of a zone. Buildings must connect when their construction is complete or, if the heat network is not ready, be made ‘heat network ready’ (for example, capped off connection pipes, suitable heat radiators, space for metering and connection apparatus).

Pre-existing communally heated buildings.

Other non-domestic buildings: a threshold test will determine which non-domestic, non-communally heated buildings will need to connect to a heat network. We are consulting on a list of potential metrics to use for this test.

These categories may change if analysis for the final impact assessment indicates that there may be an undue impact on housing supply or SME developers. If so, we will work with the Department for Levelling up Housing and Communities to revise the proposals to mitigate this impact.

Pre-existing residential buildings with individual heating systems will not have to connect.

Building owners may apply to the Zone Coordinator for exemptions to the requirement to connect. The basis for exemptions will be confirmed in legislation and will include:

A temporary exemption, which reflects a time-limited condition such as a building which currently has an existing contract for the provision of utilities to heat the building, which is too expensive to “buy out” (but would be able to connect in future).

A conditional exemption, where a building has physical characteristics which make a connection impractical or impossible. For example, if it has wholly incompatible heating systems which a heat network connection could compromise.

Automatic exceptions may be granted by the Central Authority to buildings under extenuating circumstances. Automatic exemptions permanently exclude a named site or building from the requirement to connect.

Voluntary connections

We envisage that voluntary connections (connections to buildings which aren’t required to connect) will be offered by heat network operators through marketing and engagement with building owners. This consultation seeks views on further potential incentives which would increase uptake of voluntary connections.

‘Recoverable’ Heat sources

There are a variety of low-carbon heat sources that could provide low-cost heating to heat networks. The proposal is that potential heat sources can be required to connect by Zone Coordinators. The Central Authority will provide support to Zone Coordinators to make these assessments.

Zone Coordinators will finance and facilitate the investigation of the potential for recovering heat from local sources in the local refinement phase of the zoning process. A heat source report will document this investigation and be included in the Zonal Market Prospectus published by the Zone Coordinator to attract potential heat network zone developers.

Emissions limits in zones

We are proposing that heat networks in zones will be required to comply with national emissions limits using grams of carbon dioxide-equivalent per kilowatt hour (gCO2e/kWh) of thermal energy delivered as the measure. We are not proposing to let Zone Coordinators set different limits within zones, but they will be able to prefer lower carbon projects within their assessment of bids from private developers. We are seeking views on three proposals for this national limit to take effect from 2030 (44g, 83g or 147g CO2e/kWh). ^{[footnote 1]} We envisage the initial limit will be set by the Central Authority and are seeking views on how often emission limits should be reviewed.

Notifications

The Zone Coordinator will notify a building owner when a heat network developer activates the requirement to connect, in relation to their building, and then at specific milestones in the requirement to connect process, for example advanced warning of when the agreement period (being the period between the activation of the requirement to connect, and the beginning of the connection window) will expire.

Zone size and zone reviews and revocation

Zone size

We are not proposing to set a minimum or maximum size for zones. However, for smaller zones, we envisage a lighter touch approach to zone refinement, and we are seeking views on the potential introduction of aggregation rules to combine two or more heat networks within 100 metres of each other, in order to maximise the opportunities available.

Zone review

Changes in local circumstances may require a reassessment of the designation of an area as a heat network zone, and zone reviews will assess changes and their impact, and determine whether a zone should be re-designated. Zone reviews will only be triggered by specific changes in the local area, called “relevant changes”. These include a large new development adjacent to or near an existing zone, and a new heat source being connected to a heat network in the zone. Zone review will only allow for the expansion of designated heat network zones.

Zone revocation

In most cases, we expect that zone reviews and the exemptions process will be sufficient for managing changes to the assumptions underpinning a zone designation. However, we consider it may sometimes be necessary to undo the designation of a zone, or part of a zone – a process called “zone revocation” – if it becomes evident that the original basis for designation does not apply to all or most of the buildings in the zone, or area of a zone.

Zone delivery

Zone delivery

This will be the process by which a Zone Coordinator, or the Central Authority acting as a Zone Coordinator, will be able to confer “zoning rights” to specific organisations to develop or operate heat networks within zones.

We are minded to take forward 3 delivery models for further analysis:

Authorisation and Consent (Proactive) The Zone Coordinator pre-determines the borders of the Zone Delivery Areas, and heat network developers participate in a competitive process to be assigned all rights to that zone.

Local Authority Joint Venture Heat Network Developers compete to develop an entire zone. This process is run by the Local Authority. The winning Developer enters into a corporate joint venture with the Local Authority. The Zone Coordinator grants the joint venture exclusive rights to design, construct, operate and maintain heat networks within the entire zone.

Time limited and ‘evergreen’ concessions models these models are similar to the Local Authority Joint Venture except for differences in the agreement used to govern the collaboration between the Local Authority and the Heat Network Developer. In the “Time-limited” model, the parties enter into a time-limited concession agreement. In the ‘Evergreen’ concession, the parties enter into a corporate concession agreement and establish a special purpose vehicle.

Incumbents

This consultation sets out proposals where rights to develop certain areas could be awarded to incumbent heat network operators without competition if investments have already been made in network expansion and it would not be economically feasible for competitors to move into areas of a zone where an incumbent’s expansion is already planned. Zone Coordinators would work with the incumbent to assess the extent of investments already made or planned. Incumbents would need to adhere to the same standards as new entrants, for example on carbon emission limits. In no circumstances will incumbent heat networks be required to be sold to other heat network companies because of the award of zoning rights.

Zone operation

Data throughout the zoning process

Throughout the zoning process, as well as the operation phase, data will be collected by the Zone Coordinator and heat network developers. Data will be used to:

• identify, refine and designate zones
• review the zones
• monitor zone progress both individually and nationally
• monitor the performance of zoning bodies

The wider regulatory framework

The heat network regulatory framework will introduce licences which grant heat network companies similar rights as other utilities.

 This will include the rights to:

• make a compulsory acquisition of an easement or other rights over land
• keep and re-access equipment installed under streets
• install and keep works in/under transport land
• permitted development planning rights

This process will not be automatic. Heat network companies will have to apply to Ofgem for these licences. Ofgem will require payment of a fee and will assess the suitability of the company to hold this heat network licence. Heat network companies operating in zones will not automatically receive a licence if awarded the right to develop a zone or area of a zone. We propose that Zone Coordinators should be able to require developers to prove they possess a licence when applying for the right to develop in a zone.

Local authorities will have separate powers to license heat networks or use them to develop heat networks within their jurisdiction. Whilst these licences would be separate from existing permissions under planning and building regulations, we intend to streamline the new licencing process as much as possible with existing planning and building regulations.

Enforcement, penalties, and appeals

The zoning enforcement regime will ensure that relevant people or organisations perform the duties placed on them by the heat network zoning regulations. Zoning bodies will consider enforcement and penalties as a last resort once other measures have failed, such as negotiating, grace periods, exemptions and funding support. In determining the size of the penalties, we propose different benchmarks to ensure the penalties are preventative, proportional, and fair for each of the enforceable requirements.

Enforcement

We envisage that local enforcement will be carried out by the Zoning Coordinator. This includes issuing compliance notices, investigating non-compliance, imposing penalties, and providing for an appeals process. This zoning enforcement will be in addition to, and separate from, the national heat networks regulator role which covers enforcement of heat network minimum technical standards (including national zoning emissions limits); consumer protection standards; and supporting the market in case of supplier failure.

Penalties and appeals

If a requirement of the regulations is breached, the Zoning Coordinator or Central Authority (if acting as the local Zone Coordinator) will issue a penalty notice, requiring the relevant person to rectify the breach within a specified period or pay a penalty.

The person can appeal to the issuing authority who will reassess their decision. If the decision is reaffirmed, the person can escalate their appeal to the overseeing body. If this appeals route is exhausted, the person can appeal through the tribunals system. 

We are proposing to exempt individuals and small/micro businesses with a turnover below £2 million from the penalties regime.

1. These proposed limits are in 2030 equivalent grid-decarbonisation figures. ↩