Are You Unknowingly Operating as an Energy Company?

By Luke Beard · 7 July 2025

Heat Networks: The Overlooked Compliance Risk in Property Portfolios

As the UK accelerates toward net zero, heat networks have emerged as critical infrastructure for sustainable heating. However, for many landlords and asset managers, they represent a significant regulatory blind spot that could soon carry serious compliance and financial consequences.

Social landlords currently manage over two-thirds of the UK’s heat networks, and under the new regulatory framework introduced by the Energy Act 2023, those operating these systems are now effectively classified as heat network suppliers and operators. This fundamental shift means that if you operate a communal heating or district energy system, you will be considered a “heat network supplier” or “heat network operator” under the law. Therefore, this brings you under the same regulatory umbrella as traditional energy companies.

Understanding Heat Networks

A heat network, also known as a district energy or communal heating system, delivers heat from a central source either to multiple buildings or individual dwellings through a network of insulated pipes. Rather than each property maintaining its own boiler, the heat is generated centrally and distributed efficiently across the network.

District energy systems work on a city-wide scale, producing heat at central energy centres and distributing it to multiple buildings across neighbourhoods or towns. Communal heat networks are smaller systems that operate within single buildings or housing blocks, using one central boiler or plant room to provide heating and hot water to all residents.

These systems offer significant advantages for both operators and residents. They deliver improved energy efficiency through centralised heat and cooling generation, support decarbonisation efforts and net zero targets through reduced carbon emissions and often provide cost savings through lower fuel and maintenance expenses. Additionally, they simplify maintenance requirements when compared to managing individual gas boilers across multiple properties.

The Regulatory Landscape Is Rapidly Evolving

The regulatory framework surrounding heat networks has been steadily developing, with the existing Heat Network (Metering and Billing) Regulations already requiring landlords and heat suppliers/operators to notify the government of any heat networks they operate, install metering devices where required, and bill customers based on actual consumption rather than estimates. These rules were designed to ensure transparency, improve energy efficiency, and reduce carbon emissions, yet many landlords remain unaware of their current obligations or the penalties for non-compliance.

The landscape is set to become significantly more complex with the introduction of the Heat Networks (Market Framework) Regulations 2025. From the 27^th January 2026, Ofgem will formally regulate heat networks under the Energy Act 2023, introducing a comprehensive framework that includes licensing and authorisation requirements for heat network operators, consumer protection standards similar to those already established in the gas and electricity markets, and mandatory dispute resolution through consumer redress that enables the authority to impose requirements on a regulated person to take remedial action in respect of loss, damage or inconvenience caused to consumers of the heat supplied.

This regulatory shift means that landlords can no longer treat heat networks as passive utilities. Instead, they must actively manage them as regulated assets, with all the compliance responsibilities that this classification entails.

What This Means for Your Operations

Under the new regulatory framework, landlords will face several key requirements: installing individual consumer heat meters in dwellings, where feasible, decoupling heat charges from general service charges, and providing transparent billing based on actual consumption. All operators must register with Ofgem, and we strongly advise to register with the Energy Ombudsman scheme and heat Trust.

This may require infrastructure upgrades, staff training or outsourcing to specialists, revised tenancy agreements, and restructured service charge accounting. Organisations will need to decide whether to manage heat networks in-house, add to existing compliance teams, or partner with Energy Service Companies for monitoring and billing.

Taking Action: A Practical Approach

If you’re uncertain whether your portfolio includes heat networks, start with these initial steps:

• How many heat networks do you have?: Many clients are discovering that they operate more  (or in some cases fewer) heat networks than previously understood. This uncertainty is not unique; both the government and the wider heat network industry lack a complete and accurate picture of how many heat networks exist in the UK, or how they are categorised, whether as communal or district systems, and whether they are metered or unmetered.
• Audit your properties: Focus on blocks of flats or estates with shared heating systems and what condition the heat networks are in.
• Data is key: You cannot manage what you do not measure. Visibility of your heat networks is essential to start to fully understand how your communal heating or district energy system is performing.
• Review utility arrangements: Check how heating and hot water are supplied and billed.
• Do all your customers have a suitable heat supply agreement? This is often one of the first areas that heat network operators review and it’s not uncommon to find that agreements are outdated or missing altogether. The upcoming full regulation sets out specific requirements for what’s traditionally known as a Heat Agreement, or as Ofgem refers to it, a Relevant Supply Contract or Deemed Contract.
• Is your complaints process ready for the new statutory customer advocate, OFGEM, the Citizens Advice, Heat Trust or the Energy Ombudsman? Heat network operators have traditionally managed customer complaints under a single framework. However, from April 2025, designated consumer advocates, hosted by the Citizens Advice, the Energy Ombudsman and the Heat Trust have now started to take on specific roles in overseeing and resolving heat network-related complaints. This means your organisation will need to identify and handle heat network complaints separately, ensuring compliance with Ofgem’s regulations, the Energy Ombudsman’s processes, the Heat Trusts processes and potential enquiries from the Citizens Advice.
• Consult building records: Review M&E specifications and as-built drawings.
• Engage your teams: Speak with facilities staff who understand how the heating or cooling is delivered.
• Register networks: Use the OPSS Heat Network Notification Tool for confirmed networks.
• Seek specialist advice: Engage consultants for complex situations or uncertainty.

Many heat network operators are now creating compliance plans to prepare for these changes.

For confirmed heat networks, begin preparing for Ofgem regulation immediately, including metering & billing compliance and potential licensing requirements from 2025-2026.

Funding Support Available

The Heat Network Efficiency Scheme (HNES) provides substantial funding for network assessment and improvement:

• Optimisation Studies: 100% funding (typically £15,000-£24,000 inc. VAT) for qualified third-party assessments
• Capital Improvements: Up to but not including 50% funding for implementing recommended upgrades including controls and insulation.
• Eligibility: The HNES is open to organisations in the public, private or third sectors in England and Wales.

This funding offers a clear pathway to assess a heat network condition and implement improvements where residents are experiencing high costs and/or sub optimal service.

The Urgency of Preparation

Heat network regulation represents a fundamental shift in how these systems must be managed. With Ofgem oversight beginning in 2026, unprepared landlords face penalties, consumer protection violations, and significant financial exposure. The regulatory timeline is fixed and organisations need to begin preparation immediately.

How We Support Clients with Heat Networks

At ARK we provide end-to-end support to help landlords, housing providers, and asset managers navigate the complexities of heat network ownership and regulation. Whether you are just discovering a network in your portfolio or preparing for Ofgem regulation, we’re here to guide you every step of the way. Contact us today.