Ofgem’s Heat Networks Regulation: Fair Pricing Protections consultation proposes a new framework, from 2026, to regulate heat networks across England, Scotland, and Wales under the Energy Act 2023 and the Heat Networks (Scotland) Act 2021. Heat networks, which supply heating to multiple properties from a central source, are seen as key to achieving net-zero emissions by 2050, with the UK Government aiming to increase their market share from less than 3% today to 20% by mid-century.
Managing Agent implications
However, Propertymark stressed that while it supports the principle of greater transparency and consumer protection, the practical impact on managing agents, who will have significant new reporting duties, must not be overlooked.
Reporting duties must remain as simple and intuitive as possible to guarantee maximum compliance and avoid unnecessary complications for managing agents already facing challenges managing ageing systems. We further emphasised the importance of a phased system to allow time to comply and become used to collecting the relevant data required before making this reporting an obligation.
Fair pricing must reflect real costs
Ensuring consumer fairness
One of Propertymark’s strongest recommendations was for Ofgem to consider allowing heat network customers to benefit from consumer (B2C) prices rather than business-to-business (B2B) rates. This difference, it argues, is a major reason why heat network consumers often pay more for their energy than traditional household customers, despite using comparable quantities of heat.
Benchmarking concerns
While we support Ofgem’s use of multiple benchmarking methods to reflect the diversity of the heat network market, it raised concerns about benchmarking commercial heat networks against domestic gas boilers, noting:
- Commercial gas contracts attract 20% VAT, while domestic contracts are charged at 5% VAT
- Larger networks benefit from bulk purchasing power, while smaller networks may face higher per-unit costs
Propertymark urged Ofgem to ensure these cost differentials are fully accounted for in benchmarking to avoid misleading comparisons that could distort fair pricing assessments.
Profitability assessment limitations
We caution against relying solely on EBIT (Earnings Before Interest and Taxes) or ROCE (Return on Capital Employed) metrics when assessing heat network profitability. Due to the diversity of financial arrangements across heat networks, such metrics may not give a true reflection of pricing fairness.
Central price transparency
Backing proposals for central price transparency, Propertymark recommends publishing prices by segmented categories such as age or technology, rather than blanket market-wide data that could confuse consumers. Plus, using a RAG (Red-Amber-Green) rating system alongside segmented data to provide accessible price comparison guidance.
We emphasised that transparency measures should be phased in alongside reporting requirements to avoid administrative overload for managing agents.
Clarity on cost allocation
While Propertymark generally supports Ofgem’s direction, it disagreed with the proposal to prohibit all passing on of fines, penalties, or compensation costs to consumers. It argued that there may be circumstances where penalties arise beyond the control of managing agents, such as a tenant refusing access for essential repairs, and requested clear guidance on this matter.
We support Ofgem’s efforts to drive fairness and transparency, but any changes must be practical, cost-reflective, and avoid creating barriers for managing agents delivering essential services to residents.
Any reporting system must be as simple and intuitive as possible. Ofgem must ensure they don't create unnecessary complications for managing agents who already face significant challenges in managing heat networks effectively, given the systems' age and repair requirements.
