How can governments support heat networks and shared infrastructure projects
Learning from heat network zoning policies and how to go further
ALPHA
Overview
While individual solutions such as air source heat pumps will suit many homes across the UK, shared technologies such as shared ground loops and district heat networks will be a more cost-effective solution for some homes. They can also enable local coordination between different pieces of infrastructure, for example, enabling a data centre to sell heat off to a heat network developer, or colocation with renewable energy generation. As pieces of infrastructure that can serve hundreds, and even up to thousands of households, heat networks have a unique legislative framework that local authority planners can make use of to accelerate area-based delivery.
Policy in this space moves quickly - we will keep this page updated as things change.
These are the policy changes we think matter to support shared infrastructure specifically, but we know much more is needed to decarbonise UK homes (like Policy in this space moves quickly - we will keep this page updated as things change (like making electricity cheaper), but this is where we are focused. We have published some research on shared infrastructure projects and heat networks here.
Have a view on this page or our proposals? Email us at cleanheatneighbourhoods@nesta.org.uk
The economic challenges of heat networks
In densely-built and populated areas, heat networks can represent the lowest cost option to decarbonise at scale. While they serve a minority of the UK’s heat demand, they cover 64.5% of heat technologies in Denmark and are a market-ready technology. However, in the UK, projects must face and overcome some economic challenges.
1
A fragile pipeline
Due to their high upfront costs, heat networks are challenging to fund and often require a blend of private and public capital. Despite support from the government, challenges with funding individual projects have prevented the development of a national pipeline of projects. As a result, investments in heat networks remain perceived as risky, and large institutional financial actors have not entered the market at the speed needed.
2
The high cost of electricity relative to gas
It is more challenging to create strong business cases for low-carbon shared infrastructure projects, especially when compared to legacy systems such as those dependent on gas boilers. The UK government must act to remedy this issue. Reducing the cost of heat at the source can alleviate this problem, but challenges remain.
3
Capturing waste heat
Heat networks create opportunities to tap into waste or excess heat generated from commercial or industrial sources (currently, over 50% of the heat created through industrial processes is estimated to be wasted). Opportunities for waste heat recovery include infrastructures such as data centres, which are currently being developed across the UK, including through the UK government’s AI growth zones, with research suggesting this waste heat could heat up to 6.3 million households. This strategy has potential to help lower the cost of heat, improving the business case for a heat network. However, not all governments have made equal progress in their strategies to capture this resource. In addition, not all sources of waste heat are equally suitable to all projects, which can reduce the efficiency of projects.
4
Colocating next to sources of energy generation
This can also bring down costs, but coordinating is required between energy generation projects and clean heat projects.
What policies enable the development of heat networks?
England’s heat network zoning policy
Governments in the UK have taken some steps to help secure demand and connections and lower the cost of heat accessible to heat networks. One of the most advanced pieces of this policy is the UK government’s heat network zoning policy.
The UK government’s headline ambition is for 20% of UK heat demand to be met by heat networks by 2050. To this effect, the Energy Act 2023 creates a special regime for designated areas in England identified as heat network zones. For these areas, the UK government is developing a zoning framework, determining where heat networks are likely to provide ‘the lowest cost low carbon heating solution’. The UK government has recently released further guidance on the policy, with some regulations still due to go through Parliament. As of March 2025, heat networks have also been conferred rights - similar to those of other utilities - to dig up a road and maintain equipment, lowering construction costs.
The UK government’s heat network zoning policy will operate in England. It establishes a heat network zoning authority that will support the zoning process nationally, including initially identifying heat network zones and developing a national pipeline of projects. This authority will support (and scrutinise) the zone coordination bodies (ZCBs) appointed locally. The ZCBs will designate local heat network zones, and oversee the local development of heat networks, including administering a competitive process to identify suitable developers for each zone. ZCBs will be co-designed with local authorities to arrive at the most locally suitable governance structure, and will need to go through a capability test to show they are equipped to take the local oversight of the zoning policy forward. To be able to compete in bids to develop projects, companies must be on a pre-existing list developed by the heat network zoning authority, while ZCBs are tasked with creating a zonal market prospectus for bidding developers.
The policy also includes mandates to connect to ensure that heat networks will be able to sell heat to a large number of customers. The policy gives developers (once they have been appointed as the zone developer for a designated heat network zone) the power to request mandates to connect for certain types of buildings within a heat network zone. It also includes the ability to mandate the connection of heat sources, such as ‘water treatment centres, data centres and waste incinerators’.
For all of England, heat network developers can access funding to support feasibility, construction and commercialisation through the Heat Network Delivery Unit and the Green Heat Network Fund (GHNF).
Wales’ strategy: strategic commitments, but a lack of regulatory support
As of April 2026, the Welsh Government has rejoined the UK government’s GHNF, but the heat network zones defined in the 2023 Energy Act do not extend to Wales, and it will therefore be up to the Welsh Government and the Senedd to design and implement zoning regulations. This includes implementing mandates to connect in Wales.
The Welsh Government has made strategic commitments towards heat networks over the years, but they currently lack legislation and resources to enforce them. The Heat Strategy for Wales action plan includes assessing “whether the zoning powers in the Energy Act 2023 are required in Wales”, using local area energy plans to ‘identify the opportunities for zonal planning in Wales’. Policy 16 of the National Plan for Wales identified 17 ‘Priority areas’ with ‘sufficient heat density’ where local planning authorities should investigate the potential for heat networks, but no mandate exists - despite some stakeholders’ recommendations to make them a requirement.
Heat networks can benefit from relief rates provided their heat comes from low-carbon sources, but no provisions are currently in place to mandate the sale of waste heat to heat networks. Welsh Government has also published a waste heat from mine water map to support localised ambient heat recovery opportunities. However, with AI growth zones due to bring data centres to Wales, we believe there is an opportunity for Welsh Government to act in order to capture waste heat and harness it into future heat networks, an approach that could support the development of future projects.
Scotland’s zoning policy
The Scottish Government has devised its own approach to zoning. The Heat Networks (Scotland) Act 2021 gives local authorities responsibility for identifying heat network zones as part of their local heat and energy efficiency strategy (LHEES). There are powers available to designate zones and appoint exclusive developers. At the time of writing, however, the power to require buildings to connect to a heat network has yet to be implemented in legislation. Work on the heat in buildings bill, which was due to contain these provisions, is suspended until the next Scottish Parliament, and will be critical to ensuring demand. Similarly, no legislation mandates the capture of waste heat.
The Scottish Government has also taken a different approach by including consumer incentives, with grants of up to £9,000 available to cover the cost of domestic connections to a heat network.
What should the governments do?
To address the challenges faced by heat networks, policymakers must increase guarantees for customers and project developers alike, in order to increase certainty of demand and lower the cost of capital in the longer term.
As of January 2026, Ofgem has become the designated regulated body for heat networks in the UK, a designation that includes communal and district heat networks but also shared ground loops. As such, Ofgem has powers to compel heat network operators to respect billing and consumer protection standards which heat networks had previously been exempt from. This includes fair and transparent billing assessed against a new performance framework, protecting customers from high prices generated by inefficient networks. However, while consumer protection is a reserved responsibility, powers over planning regulations are devolved, leaving Scotland and Wales to adopt their own approaches to heat network regulations.
In addition to creating a secure environment for consumers, the governments should also aim to ensure that heat networks benefit from favourable regulatory conditions in order to improve their business case. We believe that all three governments could facilitate a better market for heat networks.
1
The UK government should support area-based clean heat projects by using equity funding
Due to their high upfront costs, heat networks are challenging to fund and often require a blend of private and public capital. Despite support from the government, challenges with funding individual projects have prevented the development of a national pipeline of projects. As a result, investments in heat networks remain perceived as risky, and large institutional financial actors have not entered the market at the speed needed.
2
All governments should establish a clear zoning policy
Central governments should all work to identify the areas where heat networks will present the best and lowest-cost option. While England and Scotland have already taken some steps towards this, Wales has yet to develop a cohesive zoning policy that would help identify areas where heat networks are required beyond some priority areas.
3
Governments should support national and local pipeline development
In England, the Warm Homes Agency should support local pipeline development, including using a granular approach to local heat planning to identify investment opportunity areas and priority projects. The UK government should also make a local body, whether local or combined authorities or DNOs, explicitly responsible for pooling investment and pipeline development, with adequate capacity and revenue funding to match these new responsibilities. In Wales and Scotland, governments must draw on LAEPs and LHEES to develop a more strategic approach to projects and create regional pipelines.
4
Governments should explore granting exclusivity rights to project developers
All governments should consider de-risking projects by granting rights similar to those embedded in the UK government’s heat network zoning policy, giving vetted project developers exclusive access to develop an area, and offer local incentives for connections to customers
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All governments should explore the case for mandates to connect
The Scottish and Welsh Governments should consider where mandates to connect might be applicable, for example in the case of new developments and social housing, and de-risk retrofit connections to heat networks, for example by requiring developers to do some retrofit connections in any given zone. Policymakers could explore models used in broadband supply, such as community vouchers or a universal service obligation, to make it easier for consumers who want to access shared infrastructure to be able to access them.
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All governments should seek to incentivise or explore mandating the sale of waste heat to heat networks in heat network zones
All governments should also consider this in designated heat network zones as a precondition for the development of new infrastructure and industrial activities in an area, turning cheaper heat into a local community benefit.
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All governments should introduce effective regulatory frameworks through building standards
The Future Homes Standard and the New Build Heat Standard (Scotland) will require new-build homes to use clean heat sources. Stakeholders saw this as the correct policy to support shared heat infrastructure in new builds and was considered close to a ‘solved problem’. Stakeholders considered shared heat infrastructure for new builds to be key in building up supply chain experience and an early-stage pipeline for the sector.
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