The Energy Act 2023 – Heat Network Zoning: implications and opportunities for local authorities

The Energy Act 2023 (the “Act”) received royal assent on 26 October 2023. Part 2 of Chapter 8 of the Act introduces powers for the Secretary of State to introduce a framework via regulations to establish ‘heat network zoning’ in England.

The Department for Energy Security and Net Zero (“DESNZ”) describes heat network zoning as a ‘key policy solution’ that is needed to meet net zero targets and has stated that it would support local authorities to designate new heat network zones no later than 2025.¹ Given the short timeframe, it is crucial that local authorities are aware of their potential powers and responsibilities conferred upon them by the Act.

What is heat network zoning?

Heat network zoning is a methodology by which certain areas are identified and designated as those where district heat networks are the lowest cost solution for decarbonising heat. Factors that might be considered to identify such areas might include:

• heat demand intensity;
• building density; and
• availability of low carbon heat sources.

How do local authorities play a part?

Heat network zoning is not a new methodology. Denmark has employed a form of heat network zoning since 1979 where municipalities identified zones where district heating would be optimised. This has resulted in, to date, around 64% of all private Danish households being connected to district heating systems and is a large part of the reason that Denmark is widely recognised as one of the most energy-efficient countries in the world.

In November 2021, DESNZ consulted on heat network zoning and identified that local authorities, amongst other key stakeholders, would be involved in implementing heat network zoning. In 2022, the government published its response to the 2021 consultation and confirmed that it intended for a zoning coordinator to be established by local government with responsibility for a particular locality. Local government was perceived to be most suited to the role as a zoning coordinator due to their pre-existing responsibilities, knowledge and contacts with relevant stakeholders in the local area. Heat network zoning will therefore provide local authorities with an opportunity to adopt a central role to facilitate an increase in the heat network market and help further the nation’s goal to achieving its net zero objectives.

The Energy Act 2023: powers and responsibilities of zone coordinators under the heat network zone provisions

The Heat Network Zoning provisions of the Act are separated into headings which are considered below. The below summary is not intended to capture all the provisions of the Act, but instead provide a snapshot of the provisions that are relevant to local authorities in their potential capacity as zone coordinators.

Zones Regulations

The Secretary of State may make regulations about heat network zones (‘zones regulations’). A heat network zone is an area that is designated as appropriate for the construction and operation of district heat networks.

Heat Network Zones Authority and zone coordinators

Such zones regulations may:

• designate a person as the Heat Network Zones Authority (the “Authority”);
• provide that a local authority (or local authorities) may designate a person, and may also designate itself, as a ‘zone coordinator’;
• make provisions about a zone coordinator’s funding and governance; and
• provide that the Authority performs a zone coordinator’s functions in certain circumstances.

Identification, designation and review of zones

Under s.225 of the Act, zones regulations may provide:

• that the Authority and a zone coordinator identify and designate areas that are appropriate for the construction and operation of district heat network(s) as heat network zones and keep such designation under review; and
• procedure concerning the designation of heat network zones.

Under s.226 of the Act, zones regulations provide that a ‘zoning methodology’ must be used for any identification of a potential heat network zone. Under s.226(3) of the Act, zones regulations may provide that the Authority issues guidance in relating to the zoning methodology. Such zoning methodology may include, amongst other things:

• the criteria for determining an appropriate area;
• provision about the use of maps and how areas are identified; and
• the roles of the Authority and zone coordinators

S.227 of the Act provides that regulations may grant the Authority and zone coordinators certain powers to request information from specified persons in order to carry out their functions under s.225 and s.226 of the Act.

Heat networks within zones

Zones regulations may:

• require specified persons of a description of securing that specified buildings are connected to a district heat network within a heat networking zone in certain circumstances;
• provide that zone coordinators give notice of requirements imposed by regulations to those specified persons;
• provide that zone coordinators may request information from a person about a source of thermal energy on their premises;
• provide that zone coordinators may install equipment on a specified person’s premises to enable a source of thermal energy to supply a district heat network within a heat network zone; and
• provide that zone coordinators decide what district heat networks may be constructed and operated and by whom within a heat network zone.

Enforcement

Zones regulations may provide for a zone coordinator to issue notices requiring compliance with heat network zone requirements and impose penalties on a person for the contravention of a heat network zone requirement.

Records, information and reporting

Zones regulations may provide for zone coordinators to acquire, maintain, and provide to other zone coordinators or the Authority, information relevant to identification of appropriate areas for district heat networks.

Commentary

Currently, the form that the heat network regulations will take is unknown. Until further information and consultations are made by government concerning the regulations and relevant guidance is provided by the Heat Networks Authority, the extent of a zone coordinator’s involvement in heat network zoning is still unclear. What is clear, is that local authorities may designate themselves as zone coordinators under the Act and that central government intended for local authorities to play a role in the process.

The Act also provides that a Heat Networks Zones Authority will be established as an overseeing public body responsible for establishing the methodology for identifying heat network zones and oversight of zone coordinators. Zone coordinators will act in their capacity as localised experts to acquire both geographical and technical information in order to establish areas which can be designated as heat network zones. Such designation will provide certainty for private investment and will result in zone coordinators working both closely with key stakeholders and making key decisions on the construction and operation of new heat networks.

Further, zone coordinators will be responsible for overseeing compliance with:

• connection of specified buildings in heat network zones to district heat networks; and
• requirements under the regulations to access and utilise sources of thermal energy.

Local authorities should therefore consider:

1. the importance of growing the heat network market within the areas they are responsible for;
2. the likelihood/suitability of any areas within their control as being designated as heat network zones;
3. what resources are available to carry out the zone coordinator role and what resources need to be acquired; and
4. to initiate communications with external stakeholders in both the public and private sector who will be affected by the implementation of any regulations.

¹As published in the “Energy white paper: Powering our net zero future” by the Department for Business Energy & Industrial Strategy on 14 December 2020

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any of the issues raised in this article, please contact us today by telephone or email enquiries@sharpepritchard.co.uk.