Heat network regulations: Government planning for the new regime

Ed Weightman, senior associate and energy specialist in Penningtons Manches Cooper LLP’s Oxford office, explains some significant moves proposed by the Government to regulate heat networks which will form part of its intention to be net zero by 2050.

Background

‘Decentralised electricity self-generation’, ‘demand-side response’, ‘smart grids’, ‘electric vehicle charging points’, ‘energy service companies’ (ESCOs), ‘energy efficiency’.

If you are a developer or large-scale property owner and these terms mean anything to you, the chances are you are looking at, or even commissioning, a low-carbon heat network in response to the challenge of low-carbon protocols.

What are the new proposals?

The Government is now proposing some significant changes to create a new regulatory regime. In summary:

Ofgem to become a heat networks regulator to:
- Set consumer protection rules on matters such as information provision, pricing and quality of service.
- Monitor and enforce compliance for consumer protection, as it already does with energy suppliers, but also doing so for mandatory technical standards and decarbonisation targets.
- Issue licences that would give additional statutory rights.
The energy ombudsman will be the heat sector ombudsman.
An authorisation regime, generally, rather than licensing as with existing Ofgem-regulated energy networks and suppliers. This also envisages certification of compliance at the point that the design and build stages of a development project end and the ongoing operation and maintenance of the network begins.
A specific licensing regime for the granting of rights and powers, similar to those already held by statutory undertakings such as land access, permitted development and street works rights etc).
Use of local planning to encourage networks.

What should you be doing now?

Government is now seeking views on proposals for heat network regulation, with a closing date of June 1 for responses: see – Heat networks: building a market framework (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/864248/heat-networks-building-market-framework-condoc.pdf)

If you already have a network, or you are thinking about having one in the future, we strongly advise that you engage now with the Government in relation to the following considerations which we would suggest are central to the proposed new regime:

We agree that local planning, zoning and demand assurance should be used to encourage the development of networks. We also agree that at present this is best approached via local and regional authorities. However, we think that this needs to be combined with more support for those authorities to enable them to develop coherent, informed and enforced policies. This means giving authorities funding, strengthening technical capabilities and devolving powers in decision making in respect to related utilities such as water, gas and electricity.
Additional powers and rights for developers (land access, permitted development etc) are welcome as we know from experience that developers can struggle given the lack of rights and powers that established utilities have. We agree that these powers should be given via specific licenses and the Department for Business Energy and Industrial Strategy must give Ofgem funding to develop this capability properly.
We support the appointment of Ofgem as regulator with powers to develop and police a new compulsory (domestic) consumer protection regime. However, it is important that Ofgem develops the details of this regime in consultation with the sector and that heat network providers are given time to adapt. There are aspects of the gas and electricity licensing regime, which is often accused of stifling innovation, which would not helpfully translate across.
Setting minimum technical standards and decarbonisation targets for schemes seems necessary to achieve “net zero” along with market trust and confidence. Again, it makes sense for Ofgem to act as regulator so that regulation is not spread amongst too many regulators. However, Ofgem will need to develop capabilities in this area and we would like to know how this will interact for example with building regulations and other industry standards.

If you are contemplating procurement of a new heat network, it is important to remember that heat network agreements are long-term commitments, with long-term obligations (as well as opportunities). Each of the design, construction and operation phases are important and timely legal advice will ensure none of the crucial considerations are overlooked.

But our message now is that there is an opportunity for developers and landowners to have their say as to how they would comply with (and thrive under) a new regulatory regime. The broad outline of that future regime is starting to take shape. It is our experience that businesses that engage early make the most of the opportunities presented (and suffer least disruption).