25 January 2024

On 18 December 2023, the Department for Energy Security and Net Zero (“DESNZ”) published a consultation document on heat network zoning in England (“Zoning Proposals”). A critical element of the Zoning Proposals is the “Requirement to Connect” rules, under which a broad range of buildings located within designated heat network zones will be required by law to connect no later than a specified deadline, subject to limited exceptions (“Requirement to Connect”). This directive is a linchpin for the strategy to decarbonise heat and achieve net zero by 2050.

In our first article, we considered the importance and intention behind the Zoning Proposals. In this article, we consider the far-reaching implications of the Zoning Proposals for those within a heat network zone or who control a source of low-carbon heat nearby.

1. Requirement to Connect - mechanism and scope

Many of those who will be affected by the Requirement to Connect may not be aware of the impact the Zoning proposals will have on them. In future, there may be limited options for the way some buildings are heated and no choice of supplier. That may come as a surprise to many building owners and occupiers, perhaps long-accustomed to “shopping around”.

The following categories of building fall within the scope of the Requirement to Connect:

(i) all buildings for which planning permissions are given after the relevant regulations come into force;

(ii) existing residential and non-domestic buildings with communal heating systems;

(iii) existing residential buildings with individual heating systems which are undergoing significant refurbishment; and

(iv) existing non-communally heated, non-domestic, buildings that fall within a threshold test.

The Requirement to Connect for existing buildings will be activated by the Zone Coordinator when it receives an activation request from a heat network developer, provided that the developer has built a heat main close enough to serve a heat connection to the building(s). Once the Requirement to Connect is activated, owners of existing buildings in the relevant area will be required to connect within a “connection window” of at least one year. The building owner and the heat network developer must then seek to agree connection terms within an “agreement period” of not less than six months. A subsequent “buffer period” of two months will be allowed for the resolution of any outstanding matters, such as processing exemption applications. Flexibility is key, and heat network developers will be free to propose longer timelines, subject to Zone Coordinator approval.

For new buildings, Zone Coordinators, prompted by the heat network developer, may activate the Requirement to Connect upon being notified of a new planning application. The agreement period will last until a point before the latest opportunity to alter the building designs, with the connection window spanning the start and end of construction of the new building.

2. Exemptions to the Requirement to Connect

DESNZ recognises that the characteristics of certain buildings may make them unsuitable to connect. In these cases, the building owner will be able to apply for either a temporary or a conditional exemption, each with specific criteria and exit conditions. Temporary exemptions have an end-date, while conditional exemptions last until the material or practical barrier to connection ceases to exist.

No building within a heat network zone will be permanently exempt from the Requirement to Connect unless an “automatic exemption” applies. Automatic exemptions will be rare but may be granted by the Central Authority (DESNZ, at least initially) if connecting to a heat network would create an unacceptable risk of breaching another requirement, such as the requirement for certain buildings to have isolated infrastructure for national security reasons.

Exemptions will require the building owner to prove either that the capital cost is too great, or that connection is not feasible within the proposed window. The cost exemption ensures that buildings are not required to connect if doing so is more expensive than a suitable low-carbon alternative. However, if a building’s low carbon heating system could feasibly supply heat to the heat network, such buildings may be subject to the connection requirements on heat sources (discussed below).

3. Heat Sources – obligation to connect and supply

Heat networks have the ability to “unlock” heat from recoverable heat sources and, by doing so, both minimise the cost of low-carbon heat for relevant consumers and provide an incremental source of revenue for the providers of the heat. Accordingly, in addition to specified buildings being required to connect into heat networks, the Zoning Proposals also require certain low-carbon heat sources to connect into heat networks or provide access for the installation of heat recovery equipment.

The Zoning Proposals distinguish between the following categories of heat sources:

(i) high-temperature recoverable sources – for example, combined heat and power, energy from waste and combined heat and cooling;

(ii) low-temperature “near-constant” recoverable sources – for example, gas compressors, datacentres, wastewater treatment and electricity transformers;

(iii) low-temperature “intermittent” recoverable sources – for example, breweries, supermarkets and foundries;

(iv) ambient location-specific sources – for example, solar, sea, river and canals; and

(v) ambient location-agnostic sources – for example, air-to-water heat pumps.

Only high-temperature heat sources will be required to connect and supply, since they can deliver heat at required temperatures without additional heat pump technology. However, other heat sources (for example low-temperature recoverable sources and ambient sources) may still be required to provide access so that heat recovery equipment may be installed to enable “recoverable” heat to be utilised.

The Zoning Proposals outline a comprehensive process for exploiting suitable heat sources, starting with Zone Coordinators financing investigations into local recoverable heat sources during the local refinement phase heat network zone designation. Subsequently, a detailed heat source report will be produced, incorporating essential data such as expected delivery temperatures, reliability assessments and cost considerations. Zone Coordinators will then publish these reports in the Zonal Market Prospectus for the relevant heat network zone.

When heat network developers bid for zone rights, they will base their business cases on the information in the heat source report. They will be required to submit Zone Development Plans as part of their bid, outlining their approach to prioritising heat sources for connection to align with the timelines for broader network development. Importantly, Zone Coordinators are likely to favour bids which incorporate the identified heat sources, and heat network developers will be required to provide justifications if they choose to exclude any heat sources outlined in a Zonal Market Prospectus.

Zone Coordinators will also encourage heat network developers to start negotiations with heat source owners early. If negotiations fail, Zone Coordinators will have the power to require heat sources to connect (or give access) if a mutually beneficial price can be established without causing significant risk to the business interests of the heat source. The Central Authority will produce national guidance on the typical costs of connection or access to the different categories of heat sources.

The Zoning Proposals summarised above will have far-reaching impacts, well beyond the people who are most directly involved in the development of heat networks. Most existing and future owners of large buildings in heat network zones will be affected, as will owners of “recoverable” heat sources, in addition to heat network developers and investors. No relevant building will be permanently exempt from the Requirement to Connect unless a rare automatic exemption applies. It is therefore imperative for anyone with a relevant interest to investigate and understand the Zoning Proposals and then proactively develop and implement a business strategy which takes account of them.

DESNZ has invited interested parties to submit representations on the Zoning Proposals by 26 February 2024. The full Zoning Proposals can be accessed here:

Proposals for heat network zoning 2023 - GOV.UK (www.gov.uk)

This article was written by Charles Robson, Director and Aviva Hoekstra, Associate.

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