How can social landlords ensure their heat networks are fit for the future?
With new regulations on the horizon, heat networks pose an opportunity and a challenge for housing providers. Inside Housing and Chirpy Heat gathered the thoughts of a number of industry specialists to find out more. Illustration by Neil Webb
With new regulation on the horizon, heat networks pose opportunity and challenge for housing providers. Inside Housing and Chirpy Heat got round the table with industry specialists to find out more (sponsored) #UKhousingIn association with:
There are 14,000 heat networks across the UK – and the social housing sector manages two-thirds of them. These systems are, according to the government, “vital to making net zero a reality in the UK”; they
are often the lowest-cost, lowest-carbon way to heat homes, particularly in dense urban areas.
The vast majority use natural gas as their energy source, but heat networks are “fuel agnostic”. In other words, they can be connected to any kind of heat source.
Those credentials mask at least two vital points. First up, many heat networks were rolled out on an ad-hoc basis and suffer from a lack of investment in the skills, resources and knowledge needed to optimise them. They also vary widely in performance and quality, with older heat networks estimated to achieve around 45% efficiency compared to 65% for some more recent networks.
But the status quo is shifting for heat networks and the organisations operating them. From next January, they will be regulated by energy watchdog Ofgem (see box: Timetable for change), meaning housing providers that manage heat networks will be treated like energy companies. This poses both opportunities and challenges for the sector, not least given the many other competing demands on landlords’ scarce resources.
What are those opportunities – and how can the sector make the most of them? What will the new regulatory regime mean in practical terms? And what might a strategic sector-wide approach to these assets look like?
Read more
Ahead of the change, Inside Housing, together with heat network specialist Chirpy Heat, spoke to a selection of industry experts to discuss the new regulatory regime and what a strategic, sector-wide approach to these assets might look like.
The regulatory changes were necessary, says Dave Newton, head of heat networks, consumer standards and skills at the Department for Energy Security and Net Zero (DESNZ). “We need to move away from this model of heat being seen as a part of housing, and unbundle those things,” he says. “That is the trajectory we’re on – to unbundle heat from housing regulation.”
That unbundling process extends to separating heating bills from service charges, Mr Newton adds. This will be fundamental to navigating the new regulatory regime, because until these charges are distinct there will be two overlapping authorities.
“I know it’s the painful part, because it requires metering and changes to billing approaches,” he says. “They have to be unpicked and worked out. But unless we take that step and start making it happen, you can always have this issue of duplication.”
That does not mean the change will be easy, says Mark Foxcroft, a partner at law firm Devonshires. “It’s particularly challenging for the registered provider sector,” he says. “They are [already] being regulated more heavily, they have so many boxes to tick on that side… and money is few and far between.”
Opportunities for landlords
Other experts, however, see the opportunities the new regime presents.
‘‘When regulation comes in, there are a lot of private equity companies waiting in the wings to come and start investing,” says Daniel Perager, head of heat, energy and water at 66,500-home Notting Hill Genesis. “We’ve had very high-level discussions – there are lots of companies willing to actually adopt or even purchase existing heat network systems.”
That could be good news for social landlords with older, less efficient heat networks, and in turn for the sector more widely. “We have to be building new [heat networks] better, but we also have to address those legacy ones, because otherwise the new ones will crunch into reputational damage [suffered by] the legacy ones, where customers are going, ‘Do you know how much my heating costs? Do you know how unreliable it is?’” says Nicholas Doyle, co-founder and director of Chirpy Heat. “So we have to do both at the same time… We’ve got to sort out those legacy ones as well to make sure that we deliver for existing customers.”
For Lisa Sharples, energy and heat network manager at 25,000-home Great Places Housing Group, heat networks offer a unique opportunity to provide equitable access to decarbonised heating that is also affordable to customers. “But only when it’s done with care, with thought and with future-proofing,” she says.
While the new regulatory landscape will present challenges, Ms Sharples adds, it could help housing providers deliver on those promises. “It offers us an opportunity to ensure we are delivering fair pricing to our customers,” she says. “There is benchmarking out there, so we’ll know that our heat networks are performing well… It’s the right thing for our customers. They don’t want to live in a scheme where they have high costs and unreliable service, which is the reason the regulations are coming in… it opens us up to be more strategic, to understand where we sit and what we can do to improve.”
Timetable for change
In 2018, the Competition and Markets Authority reviewed the UK’s heat networks. It concluded that while for many customers heat networks were often both efficient and cost-effective, other customers faced poor levels of service and higher prices, and without the protections afforded to electricity and gas customers.
It recommended giving a regulator statutory powers to monitor compliance and sanction below-par operators. On 1 April this year, all social landlords that operate heat networks became members of the Energy Ombudsman, giving their residents access to independent advice and dispute resolution.
Additionally, from 1 January 2026, energy watchdog Ofgem will assume its new role as heat networks regulator. The new regime will include technical requirements, as well as enhanced consumer protections.
Ensuring heat networks remain affordable in this new landscape will require care and attention. Heat network customers cannot shop around for suppliers, and many – especially those using older and less efficient networks – are paying more for their heating as a result.
“We have a price cap for domestic consumers [of gas and electricity], but not on heat networks, and that’s been a big controversy over the past few years,” says Rob Lane, chief property officer at 125,000-home Clarion Housing Group. “As gas prices went up around the world, the residents that were on networks suffered… That needs to be addressed.”
In 2022, Clarion faced a challenge extending this protection to customers whose heat networks were managed by third parties. “We have quite a number of networks where we aren’t the owner or the operator, largely because of Section 106 schemes,” he explains. “Those operators could actually be making money in the middle… There’s no transparency.”
Social landlords can make money here too, Mr Perager says. “Profits are dirty words sometimes in social housing, but heat networks should turn a profit, and that should form part of your asset management plan,” he says. “It’s looking at that bigger picture… Can we make some money off this network by selling heat to other people?”
As energy project manager at 84,000-home housing association SNG, Anita Heath works with heat networks every day – but she is not a fan.
“I think we have created natural monopolies, and when you have a monopoly, you take away people’s ability to choose,” she says. Customers have no control over who supplies their energy or how – and they are often locked into higher heating costs than gas boiler users as a result.
The new regulatory regime could help tilt the balance back towards customers and their rights, Ms Heath says, but the costs to social landlords of renovating their older, less efficient heat networks to the new technical standards are eye-watering.
“As a housing organisation, we don’t have the kind of money that’s required,” she says. “We’ve estimated that just to bring our heat networks up to a performance standard of 65% will cost us £90m.
“The government needs to provide some funding to help us meet their expectations. We’d rather build and stick in a gas boiler. It’s much easier.”
Part of the reason for these costs is the lack of a fully developed supply chain, Ms Heath adds.
45-65%
Variation in efficiency between old and new heat networks
2026
When Ofgem will start its role as the heat networks regulator (from 1 January)
“If you can strike the balance, keep your heat network efficient, I think they’re a great tool for lowering your carbon emissions,” she says. “However, I don’t think many heat networks work that way. What we’re finding is that they are very inefficient, primarily due to the cost involved in maintaining them.
Ms Heath says these costs are inflated partly because there is a limited pool of specialist contractors to maintain and service heat networks.
Sector-wide approach
Is a sector-wide strategic approach to the changing reality a possibility? The new regulatory landscape could help deliver that, says Jake Snell, head of partnerships and innovation at 50,000-home Abri Group.
“For me, it’s about starting in a collaborative way, like we are now… being honest and open,” he says. “We need to share the pain with DESNZ and Ofgem and be completely transparent.”
But to truly unlock the potential of heat networks as low-cost, low-carbon ways to heat homes, the end users also need to be convinced – and a sector-wide approach could also be key here.
“We need to share the facts – and we need to benchmark what the facts are,” Mr Snell says. “So if you’re on a heat network, on average you save ‘x’ amount on your heating a year, and then you can actually be transparent with people and get people excited.”
Heat networks do have an image problem, says Mr Newton. “We are bedevilled at the moment by the dead-weight drag of bad stories, high prices, poor communication, higher heat losses, outages,” he says. “To get the growth we know we need in heat networks, we have to be able to tell a good story about how we’re treating customers on heat networks now. And unless we do that, we’re just not going to get that public space to have that debate.”
“If we’re going to sell heat networks, which we need to do, both to our customers and to the wider population, we need to make sure that they’re delivered better than they have been in the last 10 to 20 years,” Mr Doyle adds.
The new set of technical standards will be crucial to telling those positive stories – once operators start meeting them.
Sign up to our Best of In-Depth newsletter
We have recently relaunched our weekly Long Read newsletter as Best of In-Depth. The idea is to bring you a shorter selection of the very best analysis and comment we are publishing each week.
Already have an account? Click here to manage your newsletters.
Related stories
