Exploring the Crucial Role of Heat Networks in the UK’s Energy Transition

It is a pleasure to be here with you today.

Since I joined the department a year ago, the Association for Decentralised Energy (ADE) has been instrumental in helping me understand the workings of this sector. They have established themselves as a trusted and valued partner to both the department and myself as we navigate the challenges surrounding heat networks.

For nearly sixty years, ADE has been at the forefront of advocating for decentralised energy systems and district heating. The partnership I mentioned earlier is especially vital at this juncture, as the need for these solutions is more pressing than ever.

New Role and Focus

In July, when the Prime Minister asked me to continue my work in the department, he also appointed me as Minister for Local Energy and Jobs. The premise of this role is straightforward. Energy has always been a key sector for our nation, employing tens of thousands of individuals and significantly contributing to the economy.

As the country embarks on an energy transition, my primary focus is to ensure that every region benefits from this shift and experiences tangible improvements. People need to see the advantages in their communities, such as reduced energy bills, modernised infrastructure, and decreased pollution levels.

This transition is not merely an abstract concept; it is about building a better future for communities. It is about creating prospects that residents can genuinely appreciate. If executed correctly, this transition has the potential to rejuvenate the entire country.

This is precisely what the Government is striving to achieve. You may have heard the Prime Minister discussing our commitment to reindustrialising the nation, making energy more affordable, and empowering local communities to make informed decisions for their futures.

Commitment to Heat Networks

Our commitment to the growth of the heat network sector is unwavering. When deployed in suitable locations, heat networks present a cost-effective, low-carbon solution for heating, thereby reducing our dependence on imported fossil fuels by utilising local, recoverable heat sources. Implementing these infrastructure projects in local areas aligns with our ambitions to reinvigorate the UK economy, bringing skilled jobs to communities nationwide.

During my first visit to the department last year, I had the opportunity to witness the construction of Cardiff’s primary district heat network. This visit left a significant impression on me. I engaged with the engineers and met trainees preparing to enter the workforce with expertise in clean energy technologies. I witnessed firsthand how this industry not only addresses heating needs but also provides individuals with livelihoods, thereby bolstering the local economy and benefiting subcontractors.

Since that initial visit, I have become a strong advocate for heat networks, eager to see these advantages spread across the country. We have set ambitious targets for this sector, aiming for heat networks to fulfil 7% of heat demand in England over the next decade—effectively doubling the current level. By 2050, we aspire for them to account for one-fifth of all heating in England.

Recent Developments and Funding Initiatives

While this goal is ambitious, I firmly believe it is attainable, provided we maintain a collaborative effort between the government and the private sector. Over the past year, the industry has made remarkable strides. Several new government-supported heat network projects have commenced, supplying low-carbon heat to consumers this year. Notable examples include Seaham Garden Village in County Durham and Lancaster University, with West King Street in Hammersmith and others set to follow suit.

In the past twelve months, through four announcements regarding the Green Heat Network Fund, we have confirmed more than £200 million in government funding allocations for twenty low-carbon heat network projects. These initiatives include heat delivered via barges along the River Thames, paving the way for a significant heating project in Central London, as well as town-centre schemes in Sunderland, Stockport, Oldham, and Milton Keynes. Each project employs a diverse array of heat sources, including data centres, sewers, rivers, and energy-from-waste plants, along with large-scale heat pumps that will positively influence local grid capacity constraints.

This year, we have also expanded the Green Heat Network Fund to allow projects in Wales to apply for funding. Several areas we support through our Advanced Zoning Programme have successfully completed developer procurements and are now progressing to develop zonal-scale heat network opportunities.

Addressing Industry Challenges and Regulatory Changes

The demand for our Heat Network Efficiency Scheme remains high, and we have allocated nearly £35 million of capital funding across sixty-five projects, positively impacting over 10,000 residents reliant on heat networks. These are substantial achievements.

However, we recognise that shifts in policy direction over recent years have created uncertainty within the industry, making it challenging to plan with confidence. The core message I wish to convey today is that we are committed to changing this and providing the assurance necessary for continued growth.

There are three primary ways the government is facilitating this journey. Firstly, we are providing funding through the Warm Homes Plan, with heat networks being a central component of this initiative aimed at upgrading millions of homes across the country. We are also collaborating with the National Wealth Fund to explore increased support for this sector, as we acknowledge that the cost of low-carbon heat poses a significant barrier to growth. Reducing these costs is essential to ensuring that everyone benefits from the transition.

Creating a Sustainable Economic Environment

Consequently, we are working to establish the right economic and policy environment that reduces the costs associated with developing low-carbon heat solutions. Electrification must become the economically sensible choice for a broader array of businesses and organisations. Moreover, we need to unlock long-term private investment to enable the sector to grow on a large scale. This entails creating a market where investors feel confident committing capital for extended periods, thereby lowering the financing costs for major heat infrastructure.

To this end, we are evaluating various potential options, including a Regulated Asset Base model. Our ambition extends beyond merely increasing the number of heat networks; we aim to create a robust and sustainable sector that is rooted in the communities it serves, capable of delivering at a scale that meets the country’s needs. Empowering local areas is crucial, turning local opportunities into investment growth and ensuring that the benefits of the clean energy transition are felt throughout communities nationwide.

Enhancing Regulation and Consumer Protection

Secondly, we are committed to ensuring that the regulation of heat networks delivers optimal outcomes for both the industry and consumers. We recognise the significant potential of this sector, but we must also acknowledge that inadequate service from a minority of operators has eroded public confidence in heat networks over the years. I am optimistic that we can reverse this trend, and from discussions with industry partners, I sense a shared commitment to this goal.

We want the public to understand how transformative this technology can be for their lives. To that end, at the beginning of this year, we introduced regulation aimed at eliminating poor practices, providing consumer protections comparable to those in the gas and electricity sectors, and demonstrating that heat networks can deliver affordable, low-carbon energy produced locally.

As the new regulator, Ofgem now possesses the authority to intervene if a heat network operator unjustly increases prices or fails to provide a satisfactory level of service. This represents a significant advancement for the half a million consumers connected to heat networks, who will now be entitled to protections for the first time. However, we acknowledge that the rollout of regulation in this complex sector may present challenges, and we are dedicated to listening and learning throughout this process.

Improving Efficiency Standards

Heat networks must complete the registration process promptly, and I understand this is a priority for many. We are working closely with Ofgem to ensure that this process is as straightforward as possible for everyone involved, and we appreciate your commitment and patience as we launch this initiative. The introduction of regulations also allows consumers experiencing service outages to seek redress through the Energy Ombudsman scheme.

We have already observed the positive impact this can have. In one recent instance, the Ombudsman intervened when a supplier implemented an unjustly inflated tariff to recover historical losses. The supplier was required to rectify the bills, issue an apology, and provide goodwill credits to affected consumers. This is particularly significant in areas within my constituency where the absence of regulation and the lack of redress mechanisms have fostered negative sentiments towards heat networks—an issue we must address.

Nonetheless, we recognise that redress measures alone are insufficient. Meaningful action to enhance the technical efficiency and reliability of heat networks is essential. Many older networks, and even some newer ones, experience high heat losses or are poorly designed, constructed, operated, and maintained. This is why we consulted on establishing mandatory minimum technical standards earlier this year. It is crucial that we take the necessary time to reflect on feedback from the sector during this consultation process. We aim to ensure that the final scheme is proportionate, affordable, and deliverable, with further details to be shared in the coming months.

Empowering Local Areas through Devolution

Lastly, we are empowering local areas. You may have heard the Prime Minister discussing devolution and the initiatives we are undertaking in this department. Devolution will enable us to grant more power to local areas, allowing mayors, local governments, and communities to have greater autonomy in shaping how billions of pounds are invested.

Decisions regarding housing and energy should reflect the unique needs of the communities they serve. Devolution provides local leaders