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

The Committee consisted of the following Members:

Chair: Derek Twigg

† Athwal, Jas (Ilford South) (Lab)

† Bowie, Andrew (West Aberdeenshire and Kincardine) (Con)

Cooper, Andrew (Mid Cheshire) (Lab)

† Cooper, John (Dumfries and Galloway) (Con)

† Fahnbulleh, Miatta (Parliamentary Under-Secretary of State for Energy Security and Net Zero)

Farron, Tim (Westmorland and Lonsdale) (LD)

† Gelderd, Anna (South East Cornwall) (Lab)

Heylings, Pippa (South Cambridgeshire) (LD)

† Kumar, Sonia (Dudley) (Lab)

† Lavery, Ian (Blyth and Ashington) (Lab)

† McDonald, Chris (Stockton North) (Lab)

Prinsley, Peter (Bury St Edmunds and Stowmarket) (Lab)

Ribeiro-Addy, Bell (Clapham and Brixton Hill) (Lab)

† Stuart, Graham (Beverley and Holderness) (Con)

† Thompson, Adam (Erewash) (Lab)

† Timothy, Nick (West Suffolk) (Con)

† Turley, Anna (Lord Commissioner of His Majesty’s Treasury)

George James, Committee Clerk

† attended the Committee

The following also attended, pursuant to Standing Order No. 118(2):

Naismith, Connor (Crewe and Nantwich) (Lab)

Young, Claire (Thornbury and Yate) (LD)

Third Delegated Legislation Committee

[Derek Twigg in the Chair]

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

09:25:00

I beg to move, That the Committee has considered the draft Heat Networks (Market Framework) (Great Britain) Regulations 2025. The draft regulations were laid before the House on 28 November 2024. As heat networks have not yet been debated in this Parliament, I want to say a few words about the context for the draft regulations. Some 23% of the United Kingdom’s carbon emissions come from heating buildings, so decarbonising heat is key to reaching our net zero commitments and to reducing our reliance on international fossil fuels as we sprint to clean power by 2030. Heat pumps and heat networks are the two principal technologies that we believe will achieve that. We believe that heat networks will be key to reducing bills for the next generation. Their energy can be drawn from large, efficient heat pumps or even from heat that would otherwise be dumped into the air, such as from data centres and waste incinerators. Heat networks, which have been proven internationally to provide affordable low-carbon heat, are especially suited to dense urban areas. The Government therefore expect that about 20% of the UK’s heat demand will be met by heat networks by 2050, up from 3% today. I have visited Mersey Heat in Liverpool and seen at first hand the huge potential of heat networks, not just to benefit consumers but, critically, to regenerate our urban centres. Alongside growing the market for heat networks, we need to ensure that the 470,000 households supplied by heat networks today, as well as the many households that will be connected in future, can receive a fair deal as the market grows. One of the biggest barriers is that heat networks are inconsistently regulated. As people on heat networks cannot change their supplier, heat networks are effectively a monopoly with a captive market, which makes it harder to ensure that consumers are treated fairly. Through lots of conversations with consumer groups and through Government-commissioned research, we can identify gaps where the current market is not providing consumers with a fair service, heating is less reliable, suppliers are less transparent and it is harder for consumers to represent themselves or make complaints. The current situation is clearly intolerable. These are not just consumers, but people trying to keep themselves healthy and warm and trying to live their life. I spoke to the Association for Decentralised Energy in October about the need to ensure that these people are at the very heart of the energy market transition that we need to make and at the very heart of how we think about heat networks. The Energy Act 2023 provides powers for the Secretary of State to introduce regulations across Great Britain that will protect heat network consumers comparably to consumers of other regulated utilities. The draft regulations are the first step in introducing this regulatory framework. They will introduce an authorisation regime to be implemented by Ofgem, which will work in a similar way to the gas and electricity licensing regimes that Ofgem already regulates. They take an outcomes-based approach to reflect heat networks’ diversity of scale and their nascent market position. The draft regulations will ban running a heat network without an authorisation. To phase in market regulation, existing heat networks will automatically be given an authorisation. The conditions for authorisation are set by either the Secretary of State or Ofgem and apply rules for running a heat network. Ofgem will be able to monitor compliance with the regulations and act where appropriate. Actions that Ofgem can take include issuing information notices for compliance data, investigating suspected non- compliance, inspecting commercial premises and issuing a range of orders to require remedial action. Consumer redress orders can also be issued to require that affected consumers be given compensation. The draft regulations will require Ofgem to publish statements of policy on how powers are used. Penalties will be proportionate to the authorised person’s size and the scale of harm that their non-compliance has caused. Additionally, the draft regulations will give Ofgem powers to set standards of performance for heat networks, determining minimum performance levels of service provision to consumers.

Like the Minister, I have visited heat networks around the country and I think they have a significant part to play. She has told us what she expects the heat network contribution to be in 2050, but can she tell us what she expects it to be in 2030? What steps are being taken now, other than changing the regulatory environment, to encourage the take-up of more heat networks around the country?

We are running at the roll-out of heat networks. We want to get to 20%—for me, that is the minimum level to reach by 2050—and we want to make huge progress in this Parliament. That means getting the investment framework right, so we are talking to industry and are thinking about what investment looks like so that we can scale it up in the UK. We are trying to create a regime in which local authorities can work in a co-ordinated way to incentivise the roll-out of heat networks in their patch. Critically, we are putting in a regulatory framework, because in the end we need consumers, whether they are commercial or domestic, to have faith and confidence that heat networks will deliver for them. The draft regulations are critical to showing people that a heat network is not just good for heating their home, but good for their pockets.

I appreciate the Minister’s enthusiasm. Can she put any kind of number on her expectation for this year and for the coming years until 2030? The year 2050 is a long way off, so I would like to know the trajectory and the Government’s priority now.

I would love to give the right hon. Gentleman a number, but as it is not fully in our gift, because we are working with industry partners to get to the scale we want to achieve, I will refrain from doing so at the moment. But will he please be absolutely reassured that we are trying to run at pace? I see the huge potential of heat networks. They are a way in which we can not only decarbonise our urban centres, but fundamentally lower bills for large numbers of consumers. We are doing everything we can to reassure industry, put incentives in place and ensure that we have a regulatory framework that absolutely works for industries and for consumers so that we can get to 20% sooner rather than later. Let me say a little about how the draft regulations will apply parts 1 and 2 of the Consumers, Estate Agents and Redress Act 2007 with some modifications to apply them to heat networks. They will create the roles of consumer advocacy bodies for heat network consumers, which will be key to providing access to advice. They will also extend the Energy Ombudsman’s redress scheme to heat network consumers. The draft regulations will automatically enrol all heat networks into the scheme. Hon. Members may have noted that the commencement dates for some of the provisions are slightly different. That is because delays to the passage of the Energy Act mean that Ofgem cannot commence regulatory activities before January 2026. To ensure that heat network consumers are afforded some support before then, because we know that that is critical, we are establishing the roles of consumer advocacy, advice and redress scheme providers earlier: in April 2025. Finally, the draft regulations will make amendments to the Heat Networks (Scotland) Act 2021 to ensure that Ofgem can regulate consistently across Great Britain. My Department has consulted extensively with counterparts in the Scottish Government to reach agreement on those amendments. The content of the draft regulations is based on two consultations: a 2020 consultation on creating a market framework and a 2023 consultation on consumer protection. Across both consultations, broad support was expressed for the structures that are being created in the draft regulations. The content of the authorisation conditions is still being consulted on; the outcomes will be published before the authorisation regime commences. The draft regulations are the first step to introducing comprehensive regulation to the heat networks market. I am absolutely committed to ensuring robust consumer protections across the energy sector, because we have to maintain the confidence and the trust of consumers. Heat networks have huge potential to transform clean power, as I am sure everyone in this room agrees. Delivering cheap and efficient heat across the country is an absolute priority. The draft regulations will pave the way for a fairer industry that does not grow at the cost of consumers.

09:34:00

It is a pleasure to serve under your chairmanship, Mr Twigg, and a great pleasure to be back at another Delegated Legislation Committee. I am thinking about getting a camp bed and staying on this corridor for the rest of the year. Of late, His Majesty’s official Opposition have been accused of seeming to oppose for opposition’s sake; in last week’s Second Delegated Legislation Committee there was an uncomfortable moment when the Minister quoted a 2023 speech of mine back to me verbatim. That will not be the case this morning, however, because the Opposition welcome the move to regulate the heat networks market, which has hitherto been largely unregulated. Heat network users currently have fewer rights and diminished customer protections compared with other utility consumers. Although heat is an essential utility, the existing legislation covers only issues that pertain to metering and billing usage. We welcome the consumer protections that the draft regulations entail. Consumers and bill payers are at the crux of our energy systems, and changes made must be in their best interests. I believe that this change is indeed in their best interests: in this instance, the consumers stand to benefit. Sadly, that does not seem to be true of the Government’s energy policy more widely. We are not seeing the £300 saving on energy bills that was promised in the election campaign. What we are seeing is a ruinous overreliance on renewables, with wind generation supplying just 0.7% of the UK’s energy demand today; the boiler tax, which Labour MPs waved through Parliament last week; and the increases to employer national insurance contributions, which will depress wages and dampen employment. Households and consumers rarely seem to be the focus when this Government are making policy. Today, however, that is not the case. In the heat networks market, the consumer stands to benefit from the introduction of this regulatory framework. As the market for heat networks expands, the risk of exploitation of consumers becomes more pertinent. It is therefore right that legislation be introduced to remedy the gap and bring heat networks into line with the frameworks that regulate gas and electricity markets. I will not detain the Committee any longer. The Opposition absolutely support the regulation of the heat networks market for the sake of the protection of consumers from exorbitant charges, so I do not wish to stand in the way of the draft regulations. I strongly encourage the Government to prioritise bill payers and consumers across the rest of their energy policy, so that once again we can be in a place where I am not opposing for opposition’s sake, as I was accused of doing last week.

09:36:00

I thank hon. Members for their valuable contributions to the debate. It is great to see cross-party consensus on these important regulations. The heart of our approach has been putting consumers front and centre in our energy transition. I reassure the Committee that that is not unique to heat networks; it is the approach that we are taking in every realm of the heat transition and the energy transition as we sprint to clean power by 2030. The draft regulations will begin the process of ensuring that existing and future heat network consumers both get a fair deal. I know of cases in my constituency, and in the constituencies of hon. Members I have spoken to across the House, where that is not happening, so we need to move at pace to ensure that it does. I am excited about the potential of heat networks and what they can achieve, both for people’s pockets and, critically, for regenerating our urban areas. I hope that the consensus that we have achieved in this Committee Room today will continue in future debates as we move on to other areas of the energy transition. Question put and agreed to.

09:38:00