How can policy intervention unlock private sector investment into heat networks?

Clean heat is central to the UK’s decarbonisation ambitions, and heat networks are playing an increasingly important role in delivering low‑carbon heat at scale.  However, there is still more to do to unlock the potential of heat networks, with city-scale heat networks struggling to compete on price with buildings that have existing gas systems. 

A recent joint report from Energy UK and the Heat Networks Industry Council (HeatNIC) explains that heat networks are an essential pillar of the UK's building decarbonisation strategy that require further policy support.  The Government's Warm Homes Plan envisions heat networks supplying nearly 20% of UK heating demand by 2050, up from roughly 3% today, representing the lowest-cost clean heat option for over half of the UK's largest towns and cities. The sector is projected to unlock £100 billion of cumulative investment and sustain up to 100,000 direct and indirect jobs by 2050, while delivering an estimated £5–7 billion in avoided electricity distribution network upgrades by 2035 alone. 

However, the report identifies a critical viability gap: the cost of heat.  A typical non-domestic customer connecting to a low-carbon heat network would have a system that is 11p/kWh more expensive to own and operate than an existing gas boiler, meaning that their energy costs would increase by around 50% in comparison to its incumbent gas boiler system.  This differential, driven by high non-domestic electricity prices and the substantial capital expenditure of urban pipe-laying, is preventing approximately £5 billion worth of projects from reaching final investment decision. The report warns that without timely intervention, the UK risks losing global investor confidence and the economic benefits the sector would otherwise generate. 

To address this, the report suggests three sequenced policy recommendations: 

• Customer bill support (2027–2030): An immediate additional £1 billion of public investment would close the cost gap for near-term projects and catalyze private capital deployment. 
• Regulated Asset Base (from 2030): Establishing a RAB would lower the sector's weighted average cost of capital by providing regulated, long-term revenue assurance — potentially reducing the levelised cost of heat gap from 11p/kWh to under 1p/kWh — and would allow grant-based funding schemes to be withdrawn. 
• Regulating for decarbonisation (mid-2030s onward): Strengthening minimum energy efficiency standards for non-domestic buildings, alongside measures to reduce business electricity costs, would shift the competitive baseline from gas to clean technologies, materially reducing the need for ongoing subsidy. 

The report positions heat networks not merely as a decarbonisation tool but as a strategic industrial and devolution opportunity, coupling infrastructure investment with local job creation and community empowerment. Its central message is clear: the policy framework must catch up with the sector's ambition, and the window for action is narrowing.

The report concludes that establishing a RAB funding structure in the medium-term would be the most impactful intervention by Government in terms of reducing the overall cost of infrastructure and providing regulated returns to investors.

We are working with both private and public sector clients in relation to development of and connection to heating networks.  For more regulatory and practical insight for network developers, consumers and heat source owners, visit our Clean Heat Hub.

Heat networks present a strategic opportunity to the UK: attracting billions in private investment, and unlocking thousands of jobs to support growth in communities across the country, while ensuring customers in urban environments have access to the cheapest source of clean heat. With the right policies, these benefits are within our reach.

https://www.energy-uk.org.uk/publications/heat-networks-driving-local-growth-through-a-new-economic-model/?mc_cid=aafb9397ee