Heat Network Zoning Coordination – early-stage considerations for Local Authorities

Heat networks are a core component of the Government’s drive to decarbonise. In order to achieve this, the Energy Act 2023 (the “Act”) (which received Royal Assent on 26 October 2023) established the regulatory framework for heat networks in Great Britain.  Among other aspects the Act established that Local Authorities will have a key role to play in the roll-out of heat networks. 

Local Authorities (or groupings of them) may be required to designate themselves as heat network zone coordinators, or may be designated as such. Zone coordinators are expected to be responsible for identification, delivery, operation and review of zones. 

Forthcoming regulations being developed by DESNZ are expected to describe the rules that zone coordinators must follow and their roles and responsibilities. The regulations will define how the zoning coordinators will identify and designate heat network zones, and specify any requirements about how decisions are to be made regarding what heat networks are built in a zone, where and by whom.

Understandably, Local Authorities that we speak to have a number of questions about the zoning coordinator role, and responsibilities they may be expected to assume, including minimum requirements for them as an authority if they were to become a heat network zone coordinator, and the potential resourcing requirements for such a role. 

While the answers to these questions will be provided by regulations, some predictions can be made on the basis of consultations and discussions that have happened to date. For example:

• Structure - it appears clear that there will be a new Heat Network Zoning Authority, based within central government, which will oversee the implementation of heat network zoning and set national standards while local Zone Coordinators will have responsibility for designating areas as heat network zones and enforcing requirements within them and these Zone Coordinators will be teams working within local government;
• Establishment of a zoning pipeline – it seems likely that the Central Authority will establish a 10 – 15 year pipeline of zone opportunities;

However questions remain, including:

• Zone Coordinators – how will zone coordination operate in situations where zones cross the boundaries of more than one local authority? How will the role be funded? How will Local Authorities manage governance functions, for example in circumstances where the Zone Coordinator is housed in the local authority, and another part of the local authority bids in to be the zone developer?
• Zone development – how will Zone Coordinators develop a zone? How will standardisation of methodologies (e.g. procurement, forms of contract) operate in practice?
• Requirement to connect (heat sources) – it may be that both high temperature sources (e.g. EfW) and low temperature sources (e.g. wastewater / sewerage) could be required to connect, which is likely to be a positive outcome for the sector. However, a requirement to connect is likely to need to be assessed and to be subject to a right of appeal. To what extent will Zone Coordinators be empowered, and have the capacity, to undertake or be involved in negotiations between heat network owners and heat sources? 
• Incumbency and competed areas, requirements to interconnect – where there is an existing network, it seems likely that the operator of the existing network would be granted “incumbency” rights over that network (but not over the overall zone in which that network is located). Therefore, a new network could be competed through public procurement in the same zone. In order to ensure fairness, it seems likely that incumbent operators would be entitled to compete alongside other network developers but that procurement of the zone would need to be managed in such a way as to ensure that the incumbent would not gain automatic advantage due to their incumbent nature.

In addition, existing and new networks within a zone might be required to interconnect. 

There are expected to be “proximity rules” which will designate a “corridor” along the route of the existing heat network which is effectively protected for the incumbent, but this corridor would also be established with a view to preventing “sterilisation” of the wider zoning opportunity. 

Will Zoning Coordinators will be required to take decisions about designation of incumbents, corridors and interconnection?

We continue to monitor the consultation process and ongoing dialogue around development of zoning regulations for heat networks and would welcome the opportunity to discuss any questions or thoughts Local Authorities have about potential implications for governance, resourcing, and/or their existing heat networks, as well as any impacts of devolution on their potential roles as Zone Coordinators.