Heat networks regulation: authorisation and regulatory oversight

We are consulting on proposed new rules for the authorisation and regulatory oversight of heat networks in Great Britain (England, Scotland and Wales). ## Who should respond We would like views from anyone with an interest in heat networks, in particular: * heat network operators and suppliers * energy services companies * social housing providers * building and estate asset managers * local authorities * consumer groups * trade associations * managing agents * heat network consultants * landlords * heat network customers ## Background The Energy Act 2023 named Ofgem as the regulator for heat networks in Great Britain. Our most recent [Forward Work Programme](https://www.ofgem.gov.uk/sites/default/files/2024-03/2024-25_FWP_FINAL.pdf) outlines how we intend to develop regulations for heat networks that are proportionate, in line with our duties to protect consumers, and which support: * investment * market growth * meeting the government’s net zero targets This consultation gives further details of the processes behind this regulatory framework, building on the approaches proposed in: * our 2023 joint consultation with the Department for Energy Security and Net Zero (DESNZ) on [heat networks regulations for consumer protection](https://www.gov.uk/government/consultations/heat-networks-regulation-consumer-protection) * the 2024 [government response to that consultation](https://www.gov.uk/government/consultations/heat-networks-regulation-consumer-protection) * the contents of the upcoming Heat Networks (Market Framework) Regulations 2024 Statutory Instrument (HNMFR SI) We also describe our proposals for putting this framework in place. This will help heat network operators to prepare for the introduction of the regulatory framework from April 2025, and regulatory rules from January 2026. ### Joint Ofgem-DESNZ consultation This consultation should also be considered alongside the obligations proposed in the current joint [Ofgem-DESNZ consultation on implementation of consumer protections](https://www.gov.uk/government/consultations/heat-networks-regulation-implementing-consumer-protections). ## Before you start Read the Heat networks regulation: authorisation and regulatory oversight consultation document. You'll find it in the 'Related' section on this page. Please refer to this document when giving us your views. --- Consultation Heat networks regulation: authorisation and regulatory oversight Publication date: Friday 8 November 2024 Response deadline: Friday 31 January 2025 Team: Heat networks Telephone: 020 7901 7000 Email: HeatNetworksRegulation@ofgem.gov.uk We are consulting on our proposals for the authorisation and regulatory oversight of heat networks. This includes proposals for the monitoring, audit, compliance and enforcement of authorised persons. It follows the response to our joint consultation with the Department for Energy Security and Net Zero (DESNZ) on heat networks regulations for consumer protection (2023 consumer protection consultation), and subsequent response to that consultation (2024 government response). The proposals complement the contents of the Heat Networks (Market Framework) Regulations 2024 Statutory Instrument (HNMFR SI), providing more detail on how this will be implemented. This consultation should also be considered in conjunction with proposed obligations contained in draft authorisation conditions which are appended to the Ofgem-DESNZ joint consultation on implementation of consumer protections (2024 consumer protection consultation), running in parallel with this consultation. Proposals relating to the technical standards for heat networks, including monitoring and compliance for adherence to the standards, will be covered in separate future consultations. We would like to hear the views of people with an interest in heat networks and particularly welcome responses from: • heat network operators • heat network suppliers • energy services companies • housing providers • consumer groups • asset owners OFG1164 Consultation – Heat networks regulation: authorisation and regulatory oversight • metering and billing agents • trade associations We also welcome responses from other stakeholders with an interest in heat network regulation, and the general public. This document outlines the scope, purpose and questions of the consultation and how you can get involved. Once the consultation is closed, we will consider all responses. We want to be transparent in our consultations. We will publish the non-confidential responses we receive alongside a decision on next steps on our website at ofgem.gov.uk/consultations. If you want your response – in whole or in part – to be considered confidential, please tell us in your response and explain why. Please clearly mark the parts of your response that you consider to be confidential, and if possible, put the confidential material in separate appendices to your response. 2 Consultation – Heat networks regulation: authorisation and regulatory oversight © Crown copyright 2024 The text of this document may be reproduced (excluding logos) under and in accordance with the terms of the Open Government Licence. Without prejudice to the generality of the terms of the Open Government Licence the material that is reproduced must be acknowledged as Crown copyright and the document title of this document must be specified in that acknowledgement. Any enquiries related to the text of this publication should be sent to Ofgem at: 10 South Colonnade, Canary Wharf, London, E14 4PU. This publication is available at www.ofgem.gov.uk. Any enquiries regarding the use and re-use of this information resource should be sent to: psi@nationalarchives.gsi.gov.uk 3 Consultation - Heat networks regulation: authorisation and regulatory oversight Contents Executive Summary ................................................................................ 6 Authorisation of regulated activity on heat networks ................................. 6 Market monitoring and data requirements............................................... 7 Audit, compliance and enforcement ....................................................... 7 Authorisation conditions ....................................................................... 7 1. Introduction ...................................................................................... 8 What are we consulting on? .................................................................. 8 Context and related publications ........................................................... 9 Next steps ....................................................................................... 10 How to respond ................................................................................ 10 Your response, data and confidentiality ................................................ 11 General feedback .............................................................................. 11 How to track the progress of the consultation ........................................ 12 2. Scope of authorisation .................................................................... 13 Consultation questions....................................................................... 13 Background ..................................................................................... 13 Regulated activities ........................................................................... 14 Single operator proposals ................................................................... 15 Regulatory obligations ....................................................................... 17 Single heat network authorisation per authorised person ......................... 20 Boundaries of heat networks and regulatory responsibility ....................... 20 Regard to heat network characteristics in applying regulatory obligations .. 26 Further regulatory requirements for heat networks in Scotland................. 28 3. Implementation and transitional arrangements .............................. 30 Background ..................................................................................... 30 Key dates ........................................................................................ 30 Initial Period .................................................................................... 31 Existing and new activity ................................................................... 31 After the first part of the Initial Period .................................................. 32 Digital service .................................................................................. 32 4. Registration and Authorisation Application ..................................... 34 Consultation questions....................................................................... 34 Background ..................................................................................... 34 Provision of information and evidence for Registration and Authorisation Application ...................................................................................... 34 Registration ..................................................................................... 36 Registration process stages ................................................................ 37 Anticipated timescales ....................................................................... 38 Completed registrations ..................................................................... 38 Authorisation Application ................................................................... 39 Conferral of authorisation for deemed authorisations .............................. 39 Authorisation Application process stages ............................................... 40 4 Consultation - Heat networks regulation: authorisation and regulatory oversight Anticipated timescales ....................................................................... 41 Completed applications ...................................................................... 41 5. Making changes to a heat network authorisation ............................ 43 Consultation questions....................................................................... 43 Background ..................................................................................... 43 Requirement to inform the regulator .................................................... 44 Transfer of authorisation .................................................................... 45 Revocation of authorisation ................................................................ 45 6. Monitoring ....................................................................................... 47 Consultation questions....................................................................... 47 Background ..................................................................................... 47 Basis and approach to regular reporting ............................................... 48 Reporting frequency .......................................................................... 49 Reporting during the period following launch ......................................... 50 Reporting levels ................................................................................ 51 Reporting metrics ............................................................................. 51 Process for requesting and reporting information ................................... 59 Process and timetable for reporting during the Initial Period .................... 59 7. Audit ............................................................................................... 61 Consultation Questions ...................................................................... 61 Background ..................................................................................... 61 Proposed approach and scope ............................................................. 62 8. Compliance and enforcement .......................................................... 66 Consultation Questions ...................................................................... 66 Background ..................................................................................... 66 Compliance ...................................................................................... 66 Enforcement .................................................................................... 67 Using ‘fixed penalties’ ........................................................................ 67 9. Guidance ......................................................................................... 69 Consultation questions....................................................................... 69 10. Glossary .......................................................................................... 71 Appendix 1 Draft Authorisation Conditions ........................................... 73 Appendix 2 Heat network record of authorisation ................................. 75 5 Consultation - Heat networks regulation: authorisation and regulatory oversight Executive Summary The Energy Act 2023 appointed Ofgem as the regulator for heat networks in England, Scotland, and Wales (Great Britain). Our Forward Work Plan outlines the work we are doing in 2024 and 2025 including how we are developing and will implement a regulatory framework for heat networks which is proportionate and accommodates investment and market growth, in line with our duties to protect consumers and support meeting the Government’s net zero targets. The focus of this consultation is to give further detail of regulatory activities and processes which will underpin Ofgem’s heat networks regulatory framework, building on the approaches proposed in the 2023 consumer protection consultation and the 2024 government response, and the contents of the Heat Networks (Market Framework) Regulations 2024 Statutory Instrument (HNMFR SI). This consultation also describes our proposals for implementing the framework. This will allow industry to prepare for the implementation of the regulatory framework from April 2025, and regulatory rules from January 2026. A digital service, currently being developed, will be the primary interface between Ofgem and heat network organisations and will support regulatory activities. Our proposals cover the following: Authorisation of regulated activity on heat networks In this consultation we detail the activities that will require authorisation and the roles and obligations of regulated entities under heat network regulations. We outline the scope of authorisation, how this will be applied in the context of different heat network arrangements, and boundaries between interconnected heat networks. We detail transitional provisions whereby regulated activity will be automatically authorised during the initial stages of regulation and regulated entities will be required to register this activity with us. Thereafter, authorisation by application will be the required process to seek authorisation for new regulated activity. We outline the processes of Registration and Authorisation Application in detail, including information and types of evidence that may be required to demonstrate compliance with consumer protection measures and technical standards through the Heat Network Technical Assurance Scheme (HNTAS). Further proposals cover ongoing interactions between us and authorised entities following Registration or Authorisation Application such as how we will manage and record changes to an authorisation and the related information we hold, how we will facilitate the transfer of an authorisation, and circumstances where an authorisation may be revoked. 6 Consultation - Heat networks regulation: authorisation and regulatory oversight Feedback on these proposals will inform drafting of Ofgem regulations for the authorisation application process and associated guidance. Market monitoring and data requirements This consultation describes proposals for our approach to market monitoring including the type of data we expect authorised persons to submit on a regular basis and the frequency of data submission. It includes detail of how the ongoing monitoring process will be introduced in line with Registration and Authorisation Application, together with the proposed rules on information provision contained in the HNMFR SI and authorisation conditions being consulted on as part of the 2024 consumer protection consultation. Audit, compliance and enforcement We are providing further detail on our proposals for using audits as part of our compliance activity, covering how regulated or authorised person are meeting the consumer protection obligations, and interactions with technical audits. We also propose how we will introduce audits in the early stages of regulation to help provide assurance on data provided to Ofgem and ensure policies and processes evidenced at Registration and Authorisation Application are in place. As part of the range of compliance and enforcement tools, we have indicated that we will consider introducing ‘fixed penalties’ to help ensure compliance with particular obligations and in areas where a regulated or authorised person is required to interact administratively with Ofgem such as information provision. We are providing further detail on how we expect to implement these. Authorisation conditions We propose authorisation conditions will create regulatory obligations and apply to authorised persons undertaking regulated activity on heat networks. Throughout this document, we have referred to draft authorisation conditions which are included as an appendix to the 2024 consumer protection consultation. An authorisation condition relating to Registration has also been appended to this consultation. Additional authorisation conditions will be drafted in relation to the obligations on authorised persons proposed in this consultation. 7 Consultation - Heat networks regulation: authorisation and regulatory oversight 1. Introduction Section summary This section sets out what we are consulting on with regards to authorisation, monitoring, audit, compliance and enforcement for heat networks. It signposts the sections that address these topics and associated proposals in detail and provides context of other relevant publications and our wider work on the heat networks regulation framework. This section explains the consultation process and how you can respond to questions about our proposals. It also outlines our next steps following consultation. What are we consulting on? 1.1 We are inviting stakeholder input on our proposals for the heat network regulation framework and its implementation. The table below summarises each section of the consultation. Table 1: Summary of document Section Heading Summary 2 Scope of authorisation This section covers proposals for the scope of authorisation including the regulated activities, single operator proposals, obligations on operators and suppliers, and how network boundaries and arrangements will be understood in regulations. Detail of the Scotland heat networks licensing and consenting regime is provided for information. Implementation and transitional arrangements Information about how the regulatory regime will be implemented including key dates, detail of transitional arrangements and the digital service that will support regulation. Registration and Authorisation Application This section outlines the types of information and evidence relating to areas of regulation that we will collect as part of Registration and Authorisation Application. Also included are proposals for the process of Registration and Authorisation Application which will apply to persons undertaking regulated activity in the initial stages of regulation and following the initial stages of regulation respectively. 3 4 8 Consultation - Heat networks regulation: authorisation and regulatory oversight 5 Changes to authorisation and related records 7 Monitoring 8 Audit 9 Compliance and enforcement 10 Guidance 11 Glossary Detail of proposals for regulatory interactions following Registration or Authorisation Application including requirements to keep Ofgem informed about changes, and the processes for transfer and revocation of authorisation. This section outlines the proposals for a monitoring regime, including the level of detail and frequency of the data reported, and different reporting requirements for certain segments of the market. This section outlines our proposed approach to audit, including how proportionality and regulatory burden are considered in implementation. This section outlines our proposed range of compliance approaches, including where we expect to focus compliance activity throughout the introduction of the regulatory framework. This section outlines the range of guidance Ofgem will create to assist regulated entities in meeting the requirements prescribed in previous sections. This section provides a glossary of key terms used in this consultation document. Context and related publications The document discusses the following phases in the introduction of regulations which are described in the HNMFR SI: Initial Period: 1 April 2025 to 26 January 2028 From the beginning of the Initial Period, existing activity will be deemed authorised under regulations and heat networks will be brought into consumer advocacy and redress schemes. First part of the Initial Period: 1 April 2025 to 26 January 2027 New regulated activity that begins during this period will be deemed authorised under regulations. Regulated entities with deemed authorisation for existing or new activity will be required to register this activity with Ofgem by the end of this period. Registration is expected to be available on the digital service from early 2026. Launch Date: 27 January 2026 From this date, authorisation conditions on authorised persons will become active and Ofgem will have powers to take action in relation to these conditions. Soon after this 9 Consultation - Heat networks regulation: authorisation and regulatory oversight date, the digital service for heat networks regulation and interactions between authorised persons and Ofgem, including Registration, will go live. This consultation follows the publication of the 2023 consumer protection consultation, and the 2024 government response to it (available via the same link). This consultation should be read in conjunction with the following: • the joint DESNZ-Ofgem consultation and included draft authorisation conditions, Heat networks regulation: Implementing Consumer Protections Consultation – November 2024 (2024 consumer protection consultation) • the Heat Networks (Market Framework) Regulations 2024 Statutory Instrument which is scheduled for publication shortly after the release of this consultation • the draft authorisation condition for Registration, appended to this consultation. Future relevant consultations and publications will cover the following topics: • Heat network zoning consultation Government response • Technical standards for heat networks and the Heat Networks Technical Assurance Scheme (HNTAS) • Price protections for heat networks • Guaranteed Standards of Performance for heat networks • Heat network Step-in policy Next steps 1.2 This consultation closes on Friday 31 January 2025. We will publish a response to feedback in spring 2025. 1.3 We will draft and consult on regulations covering the authorisation application process and accompanying guidance. How to respond 1.4 We want to hear from anyone interested in this consultation, particularly heat network operators and suppliers, energy services companies, housing providers, consumer groups, asset owners, metering and billing agents, and trade associations. Please send your response to the team named on this document’s front page. 1.5 We’ve asked for your feedback in each of the questions throughout. Please respond to each one as fully as you can. 1.6 We will publish non-confidential responses on our website at www.ofgem.gov.uk/consultations. 10 Consultation - Heat networks regulation: authorisation and regulatory oversight Your response, data and confidentiality 1.7 You can ask us to keep your response, or parts of your response, confidential. We’ll respect this, subject to obligations to disclose information, for example, under the Freedom of Information Act 2000, the Environmental Information Regulations 2004, statutory directions, court orders, government regulations or where you give us explicit permission to disclose. If you do want us to keep your response confidential, please clearly mark this on your response and explain why. If you wish us to keep part of your response confidential, please clearly mark those parts of your response that you do wish to be kept confidential and those that you do not wish to be kept confidential. Please put the confidential material in a separate appendix to your response. If necessary, we’ll get in touch with you to discuss which parts of the information in your response should be kept confidential, and which can be published. We might ask for reasons why. 1.8 If the information you give in your response contains personal data under the General Data Protection Regulation (Regulation (EU) 2016/679) as retained in domestic law following the UK’s withdrawal from the European Union (“UK GDPR”), the Gas and Electricity Markets Authority will be the data controller for the purposes of UK GDPR. Ofgem uses the information in responses in performing its statutory functions and in accordance with section 105 of the Utilities Act 2000. Please refer to Ofgem’s privacy policy. 1.9 If you wish to respond confidentially, we’ll keep your response itself confidential, but we will publish the number (but not the names) of confidential responses we receive. We won’t link responses to respondents if we publish a summary of responses, and we will evaluate each response on its own merits without undermining your right to confidentiality. General feedback 1.10 We believe that consultation is at the heart of good policy development. We welcome any comments about how we’ve run this consultation. We’d also like to get your answers to these questions: 1. Do you have any comments about the overall process of this consultation? 2. Do you have any comments about its tone and content? 3. Was it easy to read and understand? Or could it have been better written? 4. Were its conclusions balanced? 5. Did it make reasoned recommendations for improvement? 6. Any further comments? 11 Consultation - Heat networks regulation: authorisation and regulatory oversight Please send any general feedback comments to stakeholders@ofgem.gov.uk How to track the progress of the consultation 1.11 You can track the progress of a consultation from upcoming to decision status using the ‘notify me’ function on a consultation page when published on our website. Ofgem.gov.uk/consultations 1.12 Once subscribed to the notifications for a particular consultation, you will receive an email to notify you when it has changed status. Our consultation stages are: 1.13 Upcoming > Open > Closed (awaiting decision) > Closed (with decision) 12 Consultation - Heat networks regulation: authorisation and regulatory oversight 2. Scope of authorisation Section Summary In this section we outline proposals for the scope of the authorisation regime for heat networks including the definitions for the regulated activities of operation and supply, options for our single operator approach, regulatory obligations on operators and suppliers, and how network boundaries and arrangements will be understood in regulations. Detail of the Scotland heat networks licensing and consenting regime is provided for information. Consultation questions Q1. Do you agree, partially agree, or disagree with our proposed operator-led approach to heat network authorisation? Please explain your answer. Q2. Do you agree, partially agree, or disagree with the need to be able to identify a single party on a relevant heat network to fulfil the role of operator? Q3. Do you agree, partially agree, or disagree with each of the proposed options for our single operator approach? Please provide detail for your response to each option. Q4. Do you or your organisation operate any networks that may be impacted by our proposals to identify a single operator? If so, how many networks? Q5. Do you agree, partially agree, or disagree with our proposals for regulatory obligations to be assigned to the role or operator or supplier? Please explain your answer. Background 2.1 In the 2024 government response, the government confirmed a future regulatory regime will require any person undertaking a ‘regulated activity’ on a heat network to be authorised by the regulator. The regulated activities are ‘operation’ and ‘supply’ and further development of the definitions of these activities is detailed in this section on page 14. 2.2 This section considers multiple parties potentially being identified as the operator on a heat network. We present three options for our single operator approach to address this issue and seek stakeholder feedback on these options. 2.3 Regulatory obligations on authorised persons have been presented in detail for feedback in the 2024 consumer protection consultation. In this section, we outline how these obligations will be associated with either the role of operator or supplier. 13 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.4 We also detail proposals for a streamlined approach to authorisation, an explanation of how heat network boundaries and separation of responsibility will be considered in regulations, and how regulations will have regard to different types of heat networks. 2.5 The requirement to be authorised shall apply to any person undertaking a regulated activity, however, regulatory obligations on an authorised person are proposed to be shaped according to heat network characteristics such as the type of consumers the network serves. Government previously confirmed this position in the 2024 government response and proposals for how this will be reflected in the processes of registering regulated activity and seeking authorisation by application are detailed on page 26. 2.6 The authorisation regime for heat networks applies to regulated activity being undertaken in relation to heat networks in Great Britain. Heat networks located in Scotland will also be subject to additional regulation for devolved matters via a licensing and consenting regime. The Heat Networks (Scotland) Act 2021 (in conjunction with relevant UK legislation) names Ofgem as regulator for this licensing regime and Scottish Ministers or the relevant local authority as regulator of the consenting regime. Further detail about interactions between these regimes and how Ofgem will conduct regulatory activities in its roles as both the authorisation and licensing authority for heat networks in Scotland is provided on page 28. Regulated activities 2.7 In the 2024 government response, government confirmed that the definition of a ‘relevant heat network’, established in the Energy Act 2023 as meaning a communal or district heat network, will remain unchanged in regulations. As such, the HNMFR SI will include regulations requiring that a person undertaking a regulated activity (operation or supply) on a communal or district heat network has been conferred authorisation or is deemed authorised under provisions in the regulations. 2.8 In the 2024 government response, government committed to refining definitions of the regulated activities (operation and supply). Definitions drafted in the regulations will focus on the party with significant control and influence over aspects of a heat network which are closely related to consumer outcomes such as network efficiency, reliability and pricing. 2.9 ‘Regulated activity’ will be defined in the HNMFR SI as: a) Operating a relevant heat network; 14 Consultation - Heat networks regulation: authorisation and regulatory oversight or a) Supplying heating, cooling or hot water to heat network consumers by means of a relevant heat network 2.10 The meaning of ‘operating a relevant heat network’ will be clarified in the HNMFR SI: “…a person operates a relevant heat network if the person controls the transfer on that network of thermal energy for the purposes of supplying heating, cooling or hot water.” 2.11 The operator will be the heat network asset owner or will have significant control over network infrastructure with the ability to invest and direct repairs and maintenance to support its continued operation. They will have the ability and be accountable to make upgrades to the network, including as obligated to achieve compliance with technical standards under the HNTAS. 2.12 In the 2024 government response, we outlined our expectation that a person undertaking supply activity will hold a heat supply contract (or equivalent contract) with heat network customers for the supply of heat and be able to set the terms of that contract. Draft authorisation conditions appended to the 2024 consumer protection consultation introduce the requirement that if an authorised person supplies heating, cooling or hot water to a consumer’s premises by means of a relevant heat network, they must do so under an agreed supply contract, a deemed contract, or equivalent. 2.13 As noted in 2024 government response, we expect, in the vast majority of cases, the same person or entity will carry out both operation and supply activity on a heat network. The proposed processes of Registration and Authorisation Application include the assumption this is the case, unless we are advised otherwise. In the processes for Registration and Authorisation Application, the entity assuming the role of operator on a network will be required to confirm whether they are also acting as supplier or provide details of another entity that is assuming this role. We are referring to this as our ‘operator-led approach’. Single operator proposals 2.14 For a particular heat network, we think that being able to identify and authorise a single entity that is undertaking operation has clear advantages. These include having a single point of contact and regulatory accountability on a network and being able to address compliance issues in a straightforward and swift manner without arbitrating which party is at fault. 15 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.15 For these reasons, we propose that the Authorisation Application process will include a requirement to have a single entity assume the role of operator on a heat network. This will apply when seeking authorisation for heat networks commissioned after the first part of the Initial Period. Requirements in relation to networks notified to us through Registration will be subject to policy decisions made following this consultation. 2.16 We have considered that there are some existing complex infrastructure ownership arrangements, notably in relation to district schemes, which may lead to multiple parties being considered to be undertaking operation on a heat network. The HNMFR SI will include provisions that where more than one person is identified as operating a relevant heat network, a) the person who is entitled to make decisions about modifying the network is taken to operate it; b) if different persons are entitled to make decisions about modifying different parts of the network, each is taken to operate it but only in respect of the relevant part. 2.17 Below we propose three options to address the potential of multiple operators being identified on a relevant heat network that is registered with us and to advance towards identifying a single operator. We encourage heat network operators to consider their current arrangements and how these might evolve to having a single operator, if this is not already the case. Option 1 – Mandatory single operator All heat network operators undertaking activity prior to regulation and those undertaking activity on networks commissioned during the first part of the Initial Period, including those that operate in respect of part of a network, will be deemed authorised under regulations. Authorisation conditions will require these operators to reach an agreement as to who would be the regulated party by a specified date, no later than the deadline for Registration. That party would make themselves and their role known to us through the registration process at which point the deemed authorisations of the other parties would cease to have effect. Option 2 – Best endeavours to nominate single operator All heat network operators undertaking activity prior to regulation and those undertaking activity on networks commissioned during the first part of the Initial Period, including 16 Consultation - Heat networks regulation: authorisation and regulatory oversight those that operate in respect of part of a network, will be deemed authorised under regulations. Authorisation conditions will require these operators to use best endeavours to identify a single operator by a specified date, no later than the deadline for Registration. If agreement is reached, the deemed authorisations of the other parties cease to have effect. In the event that the parties fail to reach agreement, they will be required to demonstrate that they had used best endeavours. Authorisation for multiple operators will then remain in place. Option 3 – Nominated single point of contact All heat network operators undertaking activity prior to regulation and those undertaking activity on networks commissioned during the first part of the Initial Period, including those that operate in respect of part of a network, will be deemed authorised under regulations. Authorisation conditions will require these operators to identify a single point of contact for Ofgem that is responsible for submitting data, will be the initial point of contact for engagement on compliance and will be responsible for coordinating responses to any request for information (RFI) issued by Ofgem in respect of compliance matters. The deemed authorisations for each operator would continue and they would each be obliged to comply with authorisation conditions in respect of their part of the network. In the event that the nominated single point of contact identifies one of the other operators as the party at fault in a compliance case, Ofgem would deal directly with this party. Regulatory obligations 2.18 Proposed regulatory obligations for an authorised person undertaking regulated activity on a heat network are set out below. These obligations and associated draft authorisation conditions are detailed further in the 2024 consumer protection consultation. 2.19 We understand that subcontracting is a common practice in the heat network industry, and it is expected that authorised persons may enter into contracts with other parties to help meet their regulatory obligations. However, unless substantial control is given over to another party such that that party assumes the role of operator or supplier on a heat network, the authorised person will retain regulatory responsibility. 17 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.20 General subcontracting such as operations and maintenance contracting will not result in delegation of regulatory responsibility to the subcontracted party as they are unlikely to be provided substantial control over network assets or supply agreements. Some long-term concession arrangements or variants of the Energy Service Company (ESCo) model may meet the threshold for sufficient handover of control, for example, where an ESCo holds the contract with the heat network customer, they will fulfil the role of supplier. Where substantial control over network assets is not provided to an ESCo, for example the ability and accountability to make investments and upgrades to meet technical standards under the HNTAS, the asset owner will be the authorised party for operation. 2.21 Subject to ongoing development, the digital service is currently intended to include a functionality for regulated entities to designate and allow third parties to act on their behalf when engaging with Ofgem. If this functionality is deliverable, this would enable subcontracted parties to complete data entry and reporting for example. Operator obligations 2.22 The heat network operator is the party responsible for meeting regulatory obligations in relation to the regulated activity of operation. They will be the asset owner or will have significant control over network infrastructure with the ability to invest and make upgrades, including where required to achieve compliance with technical standards under the HNTAS. 2.23 The heat network operator will have ultimate accountability for the day-to-day operation and maintenance of the network infrastructure including the energy centre, distribution pipework, heat exchangers and Heat Interface Units (HIUs), any secondary generation plant and any other equipment required for the operation of the heat network. 2.24 The accountabilities that arise from the operator role include: • meeting technical requirements under the HNTAS • responsibility for the day-to-day operation of the energy centre, plant, pipework, HIUs and other integral equipment on the heat network • maintenance of the energy centre, plant, pipework, HIUs and other integral equipment on the heat network • ensuring a reliable supply of heat • procurement of fuel or thermal energy source 18 Consultation - Heat networks regulation: authorisation and regulatory oversight • regulatory liability for Guaranteed Standards of Performance (interruptions, appointments etc) • notifying Ofgem of any relevant material changes to the network in a timely manner and seeking any required approvals for changes • meeting network decarbonisation requirements (once introduced) • • to evidence financial resilience to liaise with suppliers to resolve customer complaints relating to operation • having robust arrangements in place with another entity for continued operation of the network in the case of failure or revocation of authorisation • acting as contractual step-in entity for the supplier if not already assuming the role of supplier on a network Supplier obligations 2.25 The heat network supplier is the party responsible for meeting regulatory obligations in relation to the regulated activity of supply, and for the supply of heating, cooling, or hot water to consumers through a communal or district heat network. 2.26 The supplier will have a contractual relationship with heat network consumers through a heat supply contract (or equivalent agreement) or a deemed contract, for the supply of heating, cooling or hot water to that consumer’s premises, and have control over the terms of that contract. Where provision of heat is included in a rental agreement between a leaseholder and a tenant for a premises on a heat network, we do not intend that the leaseholder will be considered to be a supplier. 2.27 The responsibilities that arise from the supplier role include: • to have a contractual relationship with consumers for the supply of heating, cooling, or hot water • provision of billing information and pricing transparency to consumers • communication with consumers including billing calculation, notification of price increases, etc standards of customer service and standards of conduct complaints handling through a defined complaint procedure identifying and supporting vulnerable customers and maintaining a Priority • • • Services Register (PSR) • debt support for domestic consumers • to evidence financial resilience • acting as the single point of contact for consumers on the heat network and liaising with the operator to resolve issues and complaints 19 Consultation - Heat networks regulation: authorisation and regulatory oversight • having robust arrangements in place with the operator for continued supply on the network in the case of failure or revocation of authorisation Single heat network authorisation per authorised person 2.28 In the 2024 government response, government committed to developing a streamlined approach to authorisation, especially for parties that undertake regulated activity on multiple connected networks such as communal buildings connected to a district network. The HNMFR SI will support this approach through the inclusion of provisions enabling Ofgem to authorise a person to undertake one or more regulated activities in relation to one or more relevant heat networks specified in the authorisation. 2.29 An authorised person is proposed to hold a single heat network authorisation, specifying all activities they are authorised to undertake in relation to heat networks specified in that authorisation. The portfolio of heat networks of an authorised person may thereby be described within a single authorisation. 2.30 If an authorised person registers or is authorised in respect of additional activities or heat networks, the existing authorisation will be modified to specify the further networks or activities. For information purposes, we have provided a draft heat network authorisation document in an appendix to this consultation. Boundaries of heat networks and regulatory responsibility 2.31 A relevant heat network means a communal heat network (serving a single building that are divided into multiple premises) or a district network (serving two or more buildings). We consider that a relevant heat network generally consists of an energy centre or connection to a thermal energy source such as an upstream network, distribution pipework, heat meters, and consumer HIUs. 2.32 For the purposes of authorisation, the boundaries of an individual heat network will be defined as beginning at the energy centre or connection to thermal energy source and extending to a point of sale to an end consumer or an on- seller that is separately authorised in relation to a connected downstream network. It is expected that the point of sale will be at the consumer HIU, or a building connection or plot connection which designates a bulk supply point. 2.33 Where all regulated activities on a standalone network or on a number of connected networks is undertaken by a single entity, this will be specified within the same authorisation document. In line with our streamlined approach described previously, where possible, the digital service will avoid unnecessary duplication of information. 20 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.34 Where operation and supply activity are undertaken by different entities on a network, or where separate entities undertake regulated activity on either side of a connection between networks such as between a district and communal network, this will be specified in the separate respective authorisation for each regulated entity. A bulk metering point or point of sale is expected to designate the boundary of responsibility between separate regulated entities with connected networks. 2.35 The following paragraphs describe and illustrate different heat network arrangements and how these will be authorised. Communal network – standalone 2.36 Figure 1: two examples of standalone communal networks 2.37 This heat network arrangement consists of a single building divided into separate premises such as residential flats or retail spaces that are served by the network. Network equipment is located in a plant room within or connected to the building. 2.38 If operation and supply are undertaken by the same party on the network, both activities will be specified within the schedule of a single authorisation for that authorised person. If operation and supply are undertaken by separate parties on the network, the activity will be specified in a separate authorisation for each authorised person. District network – standalone 2.39 Figure 2: an example district network 21 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.40 This heat network arrangement is serving consumers in multiple buildings. The network does not connect to or act as a thermal energy source for any separate downstream district or communal networks. 2.41 If operation and supply are undertaken by the same party on the network, both activities will be specified in the schedule of a single authorisation for that authorised person. If operation and supply are undertaken by separate parties on the network, the activity will be specified in a separate authorisation for each authorised person. 22 Consultation - Heat networks regulation: authorisation and regulatory oversight Communal network – upstream district network as thermal energy source Figure 3: an example communal network (shown in dash-line box) with an upstream district network acting as a thermal energy source 2.42 This heat network arrangement consists of a single building divided into separate premises such as residential flats or retail spaces that are served by the network, and is connected to a thermal energy source of an upstream district network. 2.43 If operation and supply on the communal network are undertaken by the same party, both activities will be specified in the schedule of a single authorisation document for that authorised person. If operation and supply on the communal network are undertaken by separate parties, the activity will be specified in a separate authorisation for each regulated party. If a common entity is undertaking operation and supply on both the communal network and the upstream district network, this will be specified within a single authorisation which also describes both networks. 23 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.44 The boundary between the communal network and the upstream district network is designated by a bulk metering point or connection point at the communal building or site boundary. District network – upstream district network as thermal energy source Figure 4: example district network (shown in dash-line box) with a separate upstream district network acting as the thermal energy source 2.45 This heat network arrangement is serving multiple buildings each consisting of a single premises. The thermal energy source for the network is a connection to a separate upstream district network for example via a plot connection and thermal substation. 2.46 If operation and supply on the district network are undertaken by the same party, both activities will be specified in a single authorisation for that regulated party. If operation and supply on the district network are undertaken by separate parties, the activity will be specified in a separate authorisation for each regulated party. 24 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.47 The upstream district network will be specified in a separate authorisation for the regulated party that undertakes operation and supply on that network. The boundary between the networks and separate authorisations is designated by a bulk metering point or plot connection point. District network – acting as thermal energy source for other heat networks Figure 5: example district network (shown in dash-line box) acting as a thermal energy source for other heat networks 2.48 This heat network arrangement is serving multiple buildings and providing thermal energy to separate downstream communal building networks or district networks. 2.49 Operation and supply will be specified within a single authorisation where these activities are undertaken by the same entity within the district network or within any communal networks that receive heat from the district network. This 25 Consultation - Heat networks regulation: authorisation and regulatory oversight includes where a common entity operates and supplies on both the district network and communal networks receiving heat from the district network. 2.50 Where operation and supply are undertaken by separate parties within the district network or where different parties undertake activity on the district network and any communal buildings connected to it, this will be specified in a separate authorisation for each regulated party. 2.51 The boundary between the district network and any communal or district networks for which it is a heat source is designated by a bulk metering point such as a building or plot connection. Regard to heat network characteristics in applying regulatory obligations 2.52 In the 2024 government response, government confirmed that the extent to which consumer protection measures and other measures apply under the regulatory framework will depend on the type of consumers supplied on a heat network. 2.53 Draft authorisation conditions appended to the 2024 consumer protection consultation define the following heat network consumer types: • domestic • microbusiness • non-domestic • • industrial self-supply 2.54 Definitions for microbusiness, industrial and self-supply are based on definitions previously proposed in the 2023 consumer protection consultation and 2024 government response. 2.55 The 2024 consumer protection consultation also proposes definitions for small business consumer and small and medium-sized enterprise (SME), which are types of non-domestic consumers. We are consulting on the scope of non- domestic protections for these consumer types and invite feedback via that consultation. 2.56 The processes of Registration and Authorisation Application will account for the variation in regulatory obligations that apply in relation to these consumer types, and we may require more or less information is provided to support a submission. For example, the requirement to maintain a PSR only applies to networks with domestic consumers and therefore we will not require information 26 Consultation - Heat networks regulation: authorisation and regulatory oversight or evidence about vulnerable consumer policy for networks with no domestic consumers. 2.57 Where a network supplies premises of more than one classification, the highest level of regulatory obligations will apply, for example where domestic consumers are part of any network, all consumer protection areas will apply. Bulk supply 2.58 When applying consumer protections, regulations will also have regard to bulk supply activity (where thermal energy is supplied ‘in bulk’ to an intermediary who is not the final consumer). Following the 2024 government response, we have considered how authorisation conditions should be shaped to ensure that consumers on bulk supplied networks are afforded the same protections as other heat network consumers. The 2024 consumer protection consultation proposes a definition for bulk supply in the appended draft authorisation conditions and seeks feedback on specific consumer protection rules which are proposed to apply where authorised persons undertake bulk supply. Shared ground loop heat networks 2.59 Our approach to regulation will have consideration for heat networks using Shared Ground Loop (SGL) technology in combination with individual consumer controlled heat pumps. This includes SGL heat networks which charge consumers a network fee for access to the loop, and those where no fee is charged. 2.60 In the 2024 government response, while we confirmed that heat networks using SGLs are within the scope of regulation. We also acknowledged that individual consumers in these networks have greater control over their heating and electricity supply as they have access to and control of an individual heat pump, which is likely to be the greatest cost component of accessing thermal energy on this type of network. 2.61 Due to the way SGL technology differs to that of traditional heat networks, we intend to apply protections where they are relevant and practical to the characteristics of this network type. For example, the consideration of consumer vulnerability on SGL heat networks may already be subject to adequate regulatory oversight through electricity supplier licensing. It may also be necessary to adapt some consumer protections to suit this network type – for example pricing, where we may seek to ensure that the principle of fairness is applied to loop access charges, but unit pricing rules may not be relevant. 27 Consultation - Heat networks regulation: authorisation and regulatory oversight 2.62 However, because SGL heat networks do hold similarities to other heat network types in that they involve a reliance on common infrastructure (the shared loop) and are monopoly networks, we intend that the principles of consumer protection should apply. 2.63 The 2024 consumer protection consultation seeks feedback on whether specific consumer protection rules should apply to heat networks that involve an SGL and individual consumer heat pumps. Further regulatory requirements for heat networks in Scotland 2.64 The authorisation regime for heat networks applies to regulated activity being undertaken in relation to heat networks in Great Britain. Organisations that have heat networks located in Scotland will also be subject to further regulation for devolved matters via licensing and consenting regimes. The Heat Networks (Scotland) Act 2021 (in conjunction with relevant UK legislation) names Ofgem as regulator for this licensing regime and Scottish Ministers as regulator of the consenting regime. 2.65 The Heat Networks (Scotland) Act 2021 includes provisions that require any person who supplies thermal energy by means of a relevant heat network, to hold a heat networks licence. It specifies that a licence will be required at an organisation level (a single licence will be required per heat network organisation). Licensees may also be conferred powers to aid the development of heat networks such as wayleave rights and land acquisition powers. 2.66 The Scottish Government will draft regulations that will provide the framework for the licensing regime, any exemptions to the licensing requirement, types of licence conditions that may be drafted, and provisions for giving licensees powers to undertake heat network development in Scotland. 2.67 The Heat Networks (Scotland) Act 2021 stipulates that a consent is required to build and operate a heat network in Scotland and can be obtained by application to Scottish Ministers or local authorities, where delegated as the consent authority. The Scottish Government will design the consenting process and draft supporting guidance. 2.68 Consultation on consenting and licencing will be led by the Scottish Government and will provide further information about these regimes. 2.69 As we are responsible for authorisation of heat networks in Great Britain and the licensing authority for Scottish heat networks, we may take actions that assist 28 Consultation - Heat networks regulation: authorisation and regulatory oversight us to undertake these dual functions such as sharing of information internally and taking steps to avoid unnecessary duplication of processes. 29 Consultation - Heat networks regulation: authorisation and regulatory oversight 3. Implementation and transitional arrangements Section Summary This section outlines our how the regulatory regime will be implemented and what will occur and be required of authorised persons at different stages. It outlines a phased transition to full regulation with provisions for existing activity and activity beginning during the transition period to be automatically authorised. Background 3.1 After the commencement of regulation, carrying out the regulated activities of operation and supply on a relevant heat network without authorisation will become a criminal offence. The HNMFR SI will include provisions to automatically authorise persons undertaking activity immediately prior to the commencement of regulation and persons beginning new activity or activity on a new relevant heat network during the first part of the Initial Period. These parties will be required to register their activities and networks with Ofgem (see page 36). Key dates 3.2 From the commencement of regulation, entities undertaking regulated activity on a relevant heat network will be required to be authorised. However, due to the deemed authorisation provisions, this will not require any immediate action by regulated entities. The date for heat networks regulation taking effect will be confirmed in the HNMFR SI as 1 April 2025. 3.3 A summary of relevant dates includes: Initial Period: 1 April 2025 to 26 January 2028 From the beginning of this period, existing activity will be deemed authorised under regulations and heat networks will be brought into consumer advocacy and redress schemes. First part of the Initial Period: 1 April 2025 to 26 January 2027 New regulated activity that begins during this period will be deemed authorised under regulations. Regulated entities with deemed authorisation for existing or new activity will be required to register this activity with Ofgem by the end of this period. Registration is expected to be available on the digital service from early 2026. Launch Date: 27 January 2026 From this date, authorisation conditions on authorised persons will become active and Ofgem will have powers to take action in relation to these conditions. Soon after this 30 Consultation - Heat networks regulation: authorisation and regulatory oversight date, the digital service for heat networks regulation and interactions between authorised persons and Ofgem, including Registration, will go live. Initial Period 3.4 To enable existing activity on heat networks to continue after commencement of regulation and to support the transition to regulation for the heat network sector, the HNMFR SI includes transitional provisions of a period known as the ‘Initial Period’. The Initial Period will begin at the commencement of regulation and is intended to provide an appropriate period for industry to further their preparations and readiness for regulation. 3.5 Government has made provisions in the HNMFR SI that existing activity that was occurring immediately prior to the commencement of regulation, and new activity that is begun during the first part of the Initial Period, will be deemed authorised under regulations. The rationale for this provision is to enable existing and new activity to occur during the initial stage of regulation without this being illegal under regulations. 3.6 Deemed authorisation has effect regardless of whether a regulated party has engaged with us and means they are bound by regulatory obligations based in the general authorisation conditions when carrying on the activity. These conditions take effect from the Launch Date. Draft general authorisation conditions are included in the 2024 consumer protection consultation, running in parallel with this consultation. 3.7 Further provisions in the HNMFR SI require persons undertaking regulated activity (that has been deemed authorised) to engage with Ofgem before the end of the first part of the Initial Period (26 January 2027) and provide information about their organisation and heat networks. This process is referred to as Registration and is detailed on page 36. Existing and new activity 3.8 Regulated activity that was already occurring prior to regulations coming into force on 1 April 2025 is called ‘existing activity’. Regulated activity that begins after this date is called ‘new activity’. 3.9 In the 2023 consumer protection consultation, we outlined our intention that the process of Registration or Authorisation Application would be the prescribed process of engaging with us, depending on whether a person was undertaking existing activity or new activity on a heat network. 31 Consultation - Heat networks regulation: authorisation and regulatory oversight 3.10 Following that consultation, to better support a transition to full regulation, government have determined that Registration will be the process for regulated entities to engage with Ofgem during the first part of the Initial Period, to notify us about both existing and new activity. Government will confirm in the HNMFR SI that the requirement to seek authorisation prior to carrying out new activity on a heat network will become a requirement after the end of first part Initial Period, one year after the Launch Date (from 27 January 2027). After the first part of the Initial Period 3.11 Following the end of the first part of the Initial Period, entities seeking to undertake new activity will require authorisation by application to Ofgem, prior to commencement of the new activity and supply of heat to customers. This requirement will apply to regulated entities seeking to undertake further regulated activities not previously authorised in relation to existing networks, and regulated activities in respect of new networks. 3.12 We expect that following the first part of the Initial Period, applicants for authorisation will have an awareness of regulatory requirements and will be able to demonstrate compliance through provision of evidence in the application process. 3.13 Timing for implementation of the HNTAS has not been confirmed and may not be aligned with the end of the first part of the Initial Period and the Authorisation Application process. Ofgem may include specific authorisation conditions to progress authorisation applications subject to future achievement of the HNTAS certification by the applicant. 3.14 Prior to the end of the first part of the Initial Period, we will draft and publish regulations which will prescribe how parties intending to undertake regulated activity will be required to seek authorisation via Authorisation Application. Proposals for these processes are detailed below and feedback provided through this consultation will inform drafting of regulations and associated guidance. Digital service 3.15 A digital service will be developed by Ofgem to administer regulation of heat networks and enable regulated entities to engage with us. This platform will support the processes of Registration, Authorisation Application and reporting for monitoring. 3.16 When a regulated entity first interacts with the digital service, a suitably empowered individual will be required to create an account and assume the role of regulatory contact and be assigned the highest level of permissions for their 32 Consultation - Heat networks regulation: authorisation and regulatory oversight account. The regulatory contact will be able to manage other users and assign permissions such the ability to view, edit and submit data to us. They will also be the person we will engage for compliance matters and who will receive notices. 3.17 We anticipate this platform will go live soon after the Launch Date in early 2026. 33 Consultation - Heat networks regulation: authorisation and regulatory oversight 4. Registration and Authorisation Application Section Summary This section describes the processes of Registration and Authorisation Application, and how regulated entities will be required to engage with us throughout Registration and Authorisation Application. Consultation questions Q6. This question is for heat network organisations. Do you already have processes in place similar to the proposed suitability requirements? Please provide detail of processes or policies where possible. Q7. Do you agree, partially agree, or disagree with proposals for the process of Registration? Please explain your answer. Q8. Do you agree, partially agree, or disagree with proposals for the process of Authorisation Application? Please explain your answer. Background 4.1 We are seeking feedback on the proposals for Registration and Authorisation Application which will be the required processes for engaging with us in relation to activity beginning prior to or during the first part of the Initial Period of regulation and following this period respectively. These proposals are outlined on page 36 page 39. Provision of information and evidence for Registration and Authorisation Application 4.2 Table 2 below outlines the areas of regulation that Ofgem will collect information and evidence for as part of Registration and Authorisation Application and what this is intended to demonstrate. As detailed in the following section, Registration will use declarations from the regulated party to demonstrate compliance with regulations whereas the Authorisation Application process may require more detailed evidence and will be subject to assessment. This approach is being taken to enable Ofgem to capture a minimum amount of information about the high volume of heat networks that are understood to exist and will be registered during the first part of the Initial Period. 34 Consultation - Heat networks regulation: authorisation and regulatory oversight Table 2: Summary of Registration and Authorisation Application requirements per regulation area Regulation area Heat network and consumer details Description of requirements Detail of the heat network such as geographic location and technical details. Detail of the consumers supplied by the network which will shape application of consumer protection measures. Financial stability and solvency Ofgem will require that the regulated entity is financially robust and capable of successfully running a heat network organisation in line with the authorisation conditions. Suitability Applies to: operators and suppliers To demonstrate suitability, the regulated entity will be required to complete a declaration to confirm whether all persons holding a position of Significant Managerial Responsibility or Influence (SMRI) are fit and proper to occupy the role. The declaration will contain questions around past actions in the energy industry and any history of misconduct. In line with the ongoing fit and proper requirements in the draft authorisation condition appended to the 2024 consumer protection consultation, we expect authorised persons to be able to produce relevant personal information for each person with SMRI, if requested. Customer Supply Continuity Plan Applies to: operators and suppliers Demonstration that the applicant has undertaken appropriate steps to safeguard supply of heat and hot water to consumers in the event of organisational failure. Step-in arrangements declaration Pricing and billing information (to consumers) Applies to: operators and suppliers Confirmation that step-in arrangements are in place and details of the step-in organisation. Applies to: operators and suppliers Confirmation that information provided to consumers contains information that meets transparency and billing information requirements outlined in authorisation conditions. Pricing methodology Applies to: suppliers Regulated entities must have a robust pricing methodology in place to calculate pricing and allow for billing information provision for customers. Applies to: suppliers and operators (where required to understand pricing for final consumers such as in cases of split regulatory responsibility or bulk supply) 35 Consultation - Heat networks regulation: authorisation and regulatory oversight Complaints management procedure Demonstration that the regulated entity has a suitable complaints management policy and will cooperate with other authorised parties where this is required to address complaints. Priority Services Register (PSR) for vulnerable customers Process for identifying vulnerable customers HNTAS compliance Applies to: operators and suppliers Demonstration that the regulated entity has a