Heat networks currently supply a relatively small share of the UK’s heat demand but are expected to play a much larger role in long-term decarbonisation pathways. The report argues that unlocking this potential will depend on addressing persistent cost barriers that limit their competitiveness with gas.

The analysis highlights that, while heat networks have the potential to provide lower-cost, low-carbon heating, they currently face a cost disadvantage compared with gas. The report attributes much of this gap to structural factors, including the relative price of electricity compared with gas, which continues to shape the economics of low-carbon heating. Without targeted policy intervention, the gap is likely to persist, leaving consumers exposed to fluctuations in global gas prices and limiting wider system efficiencies.

In the short term, the report identifies carbon pricing reform as a key step towards creating a more level playing field between heat networks and gas. Over the medium term, measures such as targeted electricity price support and additional grant funding could help reduce costs further. Looking ahead, the introduction of a regulated asset base model is proposed to lower financing costs, reduce construction risk and improve the long-term competitiveness of heat networks. The government is using such a model to finance construction of the Sizewell C nuclear power plant in Suffolk.

According to the report’s modelling, greater deployment of heat networks could deliver substantial system-wide benefits. Previous analysis by ADE suggests this could include billions in annual savings, with cumulative benefits approaching £90bn by mid-century.  

To maximise impact, the report recommends focusing early support on a limited number of large-scale projects:  15 to 20 schemes. Over time, this could enable government support to be phased out as the sector matures in the 2040s.

The organisation is calling on the UK Treasury to commit £10bn to heat network deployment by 2035, alongside enabling legislation to support a regulatory framework under the regulator Ofgem. It argues that such measures would help ensure cost recovery while attracting private capital.

The report concludes that without further action, the UK is likely to remain reliant on gas for heating, with consumers continuing to face exposure to international price volatility.

Government heat network upgrades signal progress, but scale challenge remains

The UK government announced £40.6mn in funding in May to upgrade existing heat networks and support new schemes.

The funding will be allocated to 94 heat networks across England and Wales. According to the government, the upgrades are intended to improve efficiency for more than 10,000 residents, as well as for hospitals, charities and public buildings. Measures supported through the £15.6mn Heat Network Efficiency Scheme include replacing pipework, improving insulation and installing heat interface units.

A further £25mn from the Green Heat Network Fund will support new and expanding schemes, including the Bristol City Leap network, which is set to receive £13.5mn to extend fossil fuel-free heating to more homes and businesses while supporting more than 1,000 jobs and training opportunities.

The funding forms part of the government’s Warm Homes Plan, which includes allocations of £195mn/y for the Green Heat Network Fund and £15mn annually for efficiency improvements through to 2029/2030.

Current government targets aim to increase heat networks’ share of UK heat demand from around 3% to 7% by 2035, with longer-term projections indicating a potential increase to around 20% by 2050.

National heat network zoning model reaches milestone

Meanwhile, Arup and Ordnance Survey have reached a new milestone in the development of England’s national heat network zoning model, a tool intended to support the rollout of heat networks across multiple towns and cities.

The updated model is expected to support at least 10 towns and cities in England in establishing heat network zones later this year, with further locations set to follow as the programme expands.

Arup and Ordnance Survey were appointed by the Department for Energy Security and Net Zero (DESNZ) in 2024 under the Heat Network Zoning Consultancy Framework. Their role is to provide technical expertise and analytical support to help identify where large-scale heat networks can be deployed most effectively.

Central to this work is the national zoning model, a digital tool designed to assess the suitability of different locations for heat network development. The model uses Ordnance Survey’s datasets, including building and address information as well as roads and rivers data, to evaluate costs, constraints and delivery feasibility.

Accurate building classification is a key component of the model, helping to improve heat demand estimates and the reliability of its outputs. The potential integration of the OS National Geographic Database is also being explored, which could provide more granular building-level insights and further enhance the model’s capabilities.

Arup and Ordnance Survey have been awarded a second contract by DESNZ to expand their work on the model, including its ongoing development and assurance.