Heat networks are long-horizon infrastructure, with paybacks measured in decades. That makes political stability and what happens in Westminster, and in Ofgem’s offices, matter enormously in terms of what gets built on site, writes Richard Murray, director, Drees & Sommer UK
The short answer as to whether heat networks can be a cost-competitive solution today is yes, but only if the sector keeps them competitive on consumer outcomes.
Three things are reshaping the economics of heat networks right now: Ofgem’s new regulatory regime, the developing Heat Network Technical Assurance Scheme (HNTAS), and heat network zoning. All three can either strengthen the market or complicate it, depending on how they land.
Regulation is overdue, but proportionality is key
Authorisation conditions under Ofgem began taking effect from January 2026, with further measures phasing through 2027. Accurate billing, reliable metering and appropriate complaints handling are all basics that should have been standard already. Getting them right protects customers and gives investors’ confidence.
The risk is regulatory complexity that adds cost without adding performance. If compliance becomes overly bureaucratic or expensive, rather than outcomes focused, then that will ultimately result in unwanted operating costs and tariffs. The industry isn’t nervous about standards, it’s nervous about rigid box-ticking being confused with rigour.
Technical standards should raise the floor, not the barrier
HNTAS is intended to set minimum technical standards and lift performance across the sector, with a planned launch in 2027. The principle is sound, as the sector needs to be able to demonstrate, not just claim, that its networks are efficient, reliable, and genuinely low carbon.
What it cannot become is a scheme where the cost of demonstration falls disproportionately on existing or smaller schemes. Standards need to account for the whole system and be centred on what actually drives performance.
Lower flow temperatures, better monitoring and fewer distribution losses are the levers HNTAS should be pulling.
Zoning works if the network is worth connecting to
Heat network zoning will designate areas where district systems are expected to be the lowest-cost, low-carbon option. The clarity that brings is genuinely useful, but designating a zone doesn’t make a network competitive, it simply means the competition is on paper rather than in practice.
If a developer can achieve lower carbon and lower cost with a well-designed, low-temperature building-level system, the network has a problem that zoning doesn’t fix.
The answer isn’t tighter mandates, it is networks designed to win on merit with lower temperatures, transparent tariffs, and service standards that developers can effectively benchmark.
Temperature is the quickest lever
Network operating temperature drives nearly everything else. Higher temperature regimes push up distribution losses and reduce the efficiency of large heat pumps, which narrows the range of viable low-carbon sources and pushes up costs. Lower temperature networks do the opposite: reduced losses, improved heat pump efficiency, and the ability to integrate ambient loops and waste heat at scale.
The UK has a structural advantage here. Unlike much of Europe, we don’t have ageing legacy networks locked into high-temperature operation. New systems can be designed from the ground up to run differently. That’s a genuine opportunity, and one we should be using more aggressively than we are.
The waste heat opportunity
Data centre waste heat is one of the most compelling supply-side opportunities in the sector. Projects like Old Oak and Park Royal are already demonstrating what’s possible at scale.
The national potential is significant, though it depends heavily on where sites are built and how connections are planned.
The friction right now is commercial, not technical. A data centre operator has little incentive to commit to heat export without a clear, standardised commercial model that makes it the obvious default rather than a bespoke negotiation.
Solving that is where the sector’s energy should go, not just celebrating the projects that got there despite the barriers.
Insights from overseas
The UK doesn’t need to reinvent the wheel, and lessons can be learned from countries such as Germany that have already implemented heat network infrastructure at scale.
A key insight from our team’s work in Germany is that effective municipal heat planning depends on reliable data, such as building stock, demand profiles, grid constraints, and heat source potential. Where data is weak, plans become slower, more contested, and more expensive.
This is why German heat planning has evolved into a structured stakeholder process involving elected leadership, municipal utilities, major customers, housing associations, and the public. Planning legitimacy must be earned, as without credible participation and transparent trade-offs, even technically optimal solutions can stall.
This matters for the UK’s zoning conversation. Designation alone doesn’t make a network competitive, instead it proves that a heat zone only works when the underlying plan demonstrates the network can win on merit in terms of cost, carbon, and reliability, benchmarked against realistic building-level alternatives.
A current project in Görlitz illustrates a “stacked” supply approach, combining large heat pumps drawing on lake thermal energy, solar thermal generation, and seasonal storage. It also demonstrates that deep decarbonisation options often require transitional financing to clear investment hurdle rates without passing excessive costs to consumers.
When it comes to data centre waste heat, our experience in Neu-Isenburg shows the friction is usually commercial rather than technical, depending on robust, bankable long-term agreements between operators and utilities.
Low-temperature networks help by reducing the temperature lift required, but only with disciplined substation design and return-temperature management.
The lesson for the UK is not to replicate German rules, but to adopt the underlying approach: combine zoning with credible municipal heat planning and require staged transformation roadmaps that honestly confront the low-temperature/legacy gap.
Costs and values
Ultimately, heat networks remain one of the most credible routes to decarbonising heat at scale and achieving net zero.
To achieve this, the sector must earn its place by running networks cooler, integrating cleaner sources, and delivering value that customers and developers can see in their bills and carbon reports. The question is whether the infrastructure keeps up.
The policy environment is moving in the right direction but needs to be mindful of over burdensome regulation increasing cost unnecessarily, killing the market for customers it’s intended to help improve.
