Introduction
Heat networks are expected to become a crucial component in the UK’s pathway to net-zero by 2050. There is a growing demand for rapid, large-scale decarbonisation solutions, particularly with the backdrop of many local authorities declaring climate emergencies. Heat networks, distributing heat from centralised sources, offer a cost-effective and scalable approach to cutting carbon emissions from heating and hot water. As these networks expand, their potential to save carbon grows, as does their affordability, as utilisation of waste heat sources increases and economies of scale are capitalised upon. To meet the challenges ahead, the sector must accelerate its growth, presenting a compelling and increasingly rare greenfield opportunity for infrastructure investors in the UK – with some estimates projecting £60-80 billion investment required by 2050.
Looking back on 2024, it’s clear that the UK’s heat network sector made tremendous strides. From new investments and innovative pilot projects to strengthened consumer protections and strategic policy measures, the stage is set for greater progress in 2025 and beyond. In this article we delve into the key achievements across these areas and examine the challenges that lie ahead.
Transforming the Market Through Heat Network Zoning
The government has focused on strategically planning where and how heat networks can deliver the greatest impact. In early 2024, consultations on heat network ‘zoning’ stirred important discussions on how to identify and prioritise areas best suited to low-cost, low-carbon heating solutions. While a formal response to this consultation is now anticipated in spring 2025, the groundwork laid last year sets the stage for more robust market guidance and well-defined growth targets, providing more confidence to potential investors of a robust pipeline.
Figure 1: Illustrative heat network zone. Within a ‘zone’ heat networks are identified to be the lowest-cost heating source.
Heat zoning regulations aim to identify areas where heat networks provide the most cost-effective and low-carbon heating solutions, enabling targeted development and growth. Local authorities will be responsible for designating heat network zones based on criteria such as heat demand density, existing infrastructure, and environmental benefits. Within these zones, low-carbon heat sources can be required to connect to a network within a prescribed timeframe. Offtakers, such as public sector, large commercial buildings and new developments can also be required to connect. In addition to ensuring the required economies of scale, zoning should create a critical mass of supply and offtakers to support long-term investment in heat networks by developers, project sponsors and lenders.
To help applicants pinpoint future heat network hotspots, ‘zoning maps’ were released by the Department for Energy Security and Net Zero (“DESNZ”) in September 2024, covering 21 towns and cities across the UK. These data-driven resources allow potential investors, local authorities, building owners and developers to visualise where heat networks currently exist, where they are likely to expand, and areas for new deployment. They ensure better, more informed decision-making and demonstrate how data is guiding market evolution.
Pilot Projects Leading the Way
The government went one step further in October by announcing the first towns and cities to ‘pilot’ heat network zones. The 6 areas selected by DESNZ were Bristol, Leeds, Plymouth, Sheffield, Stockport and London (2 separate areas). Collectively, these projects will receive a share of £5.8 million in government funding to develop the heating zones, with construction expected to start as early as 2026.
These pilot zones represent a critical step in demonstrating the potential of targeted, large-scale heat network developments. By focusing on areas with high heat demand and abundant low-carbon heat sources, these zones aim to showcase the power of combined strategic and spatial planning.
If successful, the projects will not only provide a blueprint for future zones but also act as testbeds for innovative technologies and approaches, helping to identify best practices and how to tackle challenges that will inevitably emerge. In particular, the pilots should inform how to optimise procurement processes and commercial delivery models, with local authorities having the power to decide upon the appropriate structure – ranging from fully council to fully private-sector owned, in addition to hybrid joint-venture agreements.
The Impact of SWAN
One of the most prominent projects is London’s £1 billion South Westminster Area Network (“SWAN”), which was awarded to a joint-venture of leading developers, Hemiko and Vital Energi. The project aims to source heat locally from the London Underground and the River Thames to warm businesses, homes and the many iconic landmarks across the area.
Having advised DIF CVC on its acquisition of Hemiko in 2023, the developer is now a valued client of Evolution Infrastructure, and we are pleased to see the company continue its rapid growth and securing landmark projects such as SWAN.
Figure 2: For the buildings identified on this map, connecting to SWAN should be the most cost-effective way to decarbonise heating, according to the National Zoning Model.
Aside from the unparalleled scale of ambition of SWAN, it demonstrates that large-scale procurement can be done effectively at speed – with only 4 months between tender notice to signing and commencement of development work, 5x faster than most procurement exercises run to date.
Government Support Fuels Growth, Scale and Innovation
On the investment front, 2024 saw an impressive £190 million in funding allocated through the Green Heat Network Fund (“GHNF”), a capital grant initiative that is a core element of the government’s Heat Network Transformation Programme. In addition, a further £9.8 million was awarded from GHNF’s predecessor, the Heat Networks Investment Project (“HNIP”) in its final round of awards. These awards are energising projects that harness waste heat, tap into data centres, and serve thousands of new homes and commercial spaces. Notably, a major new network in North-West London being developed by the Old Oak and Park Royal Development Corporation will supply low-carbon heat to around 10,000 homes and 250,000m² of commercial space utilising heat from nearby data centres, showcasing both scale and innovation.
Through GHNF support, £80 million was allocated to innovative heat networks utilising waste heat, including £11 million for Bolton’s sewer heat project. Additional funding of £79 million supported low-carbon heating for 17,000 homes and buildings, with projects in Birkenhead, Hampshire, and Loughborough. As the year concluded, the final HNIP awards included support for Gateshead’s mine-water scheme, Islington’s initiative to harness London Underground waste heat, and E.ON’s ectogrid™ decarbonisation project in Silvertown, London.
There was also closer alignment between wider public sector funds and the heat network agenda. The Public Sector Decarbonisation Scheme and the Warm Homes: Social Housing Fund have highlighted heat networks as a key technology to consider. This recognition underscores the government’s intent to integrate heat networks into broader decarbonisation efforts.
A Milestone Year for Policy and Consumer Protection
One of the year’s most significant achievements was the advancement of consumer-focused policies, particularly in the context of recent stories in the press regarding sub-par service. Ensuring households and businesses can trust their heat network providers has been a central goal. In April, the UK Government published its response to a consultation on consumer protections for heat networks. This step addressed key concerns, such as pricing transparency, service quality standards, and support for vulnerable consumers.
By November, momentum had continued with the introduction of secondary legislation on the Heat Network Market Framework. The Government also worked closely with Ofgem (incoming regulator) to jointly consult on implementing consumer protections, making 2024 a landmark year for safeguarding the interests of households.
It is also worth mentioning the Heat Network Efficiency Scheme (“HNES”), which supported over 230 projects with more than £34 million in funding. HNES supports performance improvements to existing district or communal heating projects that are underperforming.
Scaling Up
2024 marked the end of an active year for heat networks and laid crucial groundwork for 2025 and beyond. With strong policy frameworks, enhanced consumer protections, significant investments, and a broad strategic vision now in place, the UK’s heat network sector is poised to deliver even more ambitious outcomes in the near future. The progress made this year not only inspires confidence but also reflects a shared commitment – from government, industry, investors, and communities.
Ultimately however, the UK has a long way to go if it is to achieve the aim of heat networks providing 20% of total heat requirement by 2050 and emulate the effectiveness of heat networks such as those in Northern Europe. Scale is essential to the success of heat networks; aside from the numerous technical and economic benefits of larger networks, increasing scale supports the cost equalisation between clean and fossil-fuel derived heat by enabling efficient use of power markets. Building public awareness and trust, developing a robust supply chain, and progressive policy that persists over multiple governments are the foundations that create the necessary conditions for scale, and of course stimulate investor confidence.
Figure 3: Illustration of heat network capacity growth potential (source: Heat Road Map Europe 2050 scenario and DESNZ).
It will be interesting to see how local government fares with the increasing procurement and governance burden and complexities that zoning introduces, particularly given their role as ‘zoning coordinators’ whilst also potentially playing a role in network development and ownership.
EvoInfra’s Breadth of District Heating Expertise
We have a wealth of experience in the district heating and decentralised energy sectors across our service lines. This ranges from M&A advisory support through to financial modelling for individual or portfolios of projects (for appraisal, monitoring and valuation) through to corporate-level models for shareholder and lender reporting. Our model audit team has also provided assurance on numerous models in the sector. Get in touch with Moeen Patel at patelm@evoinfra.com to learn more.
