Devolution, Local Government Reorganisation and district energy

Written by Ash Woodcock, Kirtpal Kaur Aujla, Carrie Davies, and Freddie Sedgwick.

In December 2024, the government published the English Devolution White Paper entitled Power and Partnership: Foundations for Growth.  As set out in that White Paper the government’s aim is to expand devolution across England. This is relevant to district energy because the intention is to enable new Strategic Authorities to take a leading role in delivering clean energy solutions in their areas, including in delivering heat networks.

Heat networks are a core component of the government’s drive to decarbonise and the Energy Act 2023 (the “Act”) establishes that local authorities will have a key role to play in the roll-out of heat networks.

The Act provides that local authorities (or groupings of them – which may include the envisaged Strategic Authorities) are to be heat network “Zone Coordinators” and therefore responsible for identification, delivery, operation and review of heat network zones.

Meanwhile, local government reorganisation (“LGR”) (as envisaged in the White Paper) is likely to affect many aspects of operations of local authorities including systems and contracts, companies owned by local authorities, property assets, and procurement. 

Local authorities that are affected by LGR and have, or are in the process of developing, heat networks therefore find themselves at an intersection of two areas of regulatory change. Heat networks involve many if not all of the aspects affected by LGR. For example:

• Systems and contracts – heat network operation, maintenance, metering and billing
• Companies – local authority wholly-owned ESCOs (including TECKALs), or participation in joint ventures and special purpose vehicles
• Property assets – leases for energy centres and heat network pipes, anchor loads such as local authority buildings, and supply to local authority tenants
• Procurement – from the networks themselves to heat purchase and sale, and the systems and contracts set out above.

There is a degree of uncertainty in both LGR and the regulation of heat network zoning and we look to forthcoming consultation responses in both areas to provide some answers. However, there are things that local authorities can start thinking about / doing now to help prepare:

1. Governance functions – which entity might take a Zone Coordinator role and what effect might that have for heat networks already in existence or at the planning stages.
2. After LGR, does the new authority structure envisage being a heat network operator or developer, or a Zone Coordinator - noting there may not be an option, and this lack of option needs to be considered.
3. How will the management of heat networks in the reorganised area be resourced?
4. Does the national zoning model already envisage zone(s) in the area? Do these overlap with boundaries of other local authorities and if there are boundary overlaps how does that fit with proposed LGR boundaries?
5. If there are potential zones that are expected to be designated for heat networks, what is happening in or planned for those areas (for example housing or commercial developments, data centres)? Where there are already indications of areas that may be designated as zones, it is not too early to start discussing this with colleagues whose functions may be affected – such as housing, planning and development.
6. Where there is an existing network in which an authority affected by LGR is a co-investor, or if it owns an ESCO, consideration is needed as to the potential impact of designation of a Zone Coordinator might affect decisions about how to structure the delivery model and the network.
7. If an authority is involved with a potential heat source such as an EfW or data centre, it may want to consider whether any of the agreements it is negotiating or already have in place can accommodate a requirement to connect if and when a heat network is developed.
8. Similarly, if the authority is entering into arrangements with commercial developers it may want to consider including provisions in agreements requiring them to connect when a heat network is available.
9. Regardless of whether authorities continue to be directly involved in delivery of heat networks or take a more high-level strategic role as Zone Coordinators, the loads that they can bring are likely to be critical to the success of heat networks. It is therefore worth considering how this role as a customer will play out – what loads might the authority be able to commit and what decisions and agreements will need to be in place to enable it to do so?

Getting ready for LGR and for heat network zoning both require thinking about existing (and planned) arrangements and how those fit within future structures. A good place to start is with audits of existing contracts, for example:

• Where an authority already has a heat network, is connected to one or plans to connect, consider the terms of existing agreements and whether they give the rights and protections needed.
• If the authority has or is entering into arrangements with potential heat sources, think about mandates to supply heat.
• If the heat source is an EfW, think about the UK Emissions Trading Scheme.
• Think about property – in the authority’s role as freeholder, landlord, and counterparty to development agreements – to what extent can any changes the authority might be making now (for example to tenancy agreements) be made with LGR and heat network connections in mind.

We recognise that this may all feel overwhelming, particularly with the levels of uncertainty surrounding both LGR and heat network zoning. However, time spent in preparing and planning is likely to be time well-spent. If you would like further information, or to discuss how LGR and heat network zoning may affect you, we have a dedicated team of experts who can help.

Click here to learn more about our district energy support, and here to learn more about how we are helping authorities prepare for LGR