Commissioned by independent UK law firm Burges Salmon, the research, Getting to Net Zero – The potential for heat networks in our communities, collates the views of 80 UK-based investors and developers to gather insights and experiences of funding and developing heat networks projects in the UK and Europe.

Conversely, the data suggests developers are more cautious in shaping up risk profiles, with only 45% believing heat networks to be attractive and just 41% expecting to see them generate sustained investment.

The report comes at a time when the government is preparing to publish the findings of its public consultation on heat networks zoning proposals in England, to attract investment and allow local communities to access, at pace, cheaper, greener heat.

With around one-fifth of UK carbon emissions coming from heating, the opportunities presented by heat networks to reduce emissions have formed an important part of the government’s net-zero strategy and new legislation introduced in the Energy Act 2023 has brought some much-needed clarity.

The changes have been welcomed by many and optimism about their impact is high among investors who are far more encouraged by the new legislation: 60% say that it will stimulate funding into heat networks and over a third say they view clean heat mandation (the requirement to connect certain buildings within prescribed zones to a new heat network) as the best way of ensuring success in the longer term, making investment into heat networks more attractive. The appointment of Ofgem as the new heat networks regulator is also a move that has been hailed as a positive step change.

While government mandates are boosting investor confidence, the report shows over half of investors, 53%, are seeing bigger government incentives and larger margins as the most effective ways of encouraging heat networks investment.

Charles Robson, a Director at Burges Salmon and head of the firm’s Clean Heat practice, commented: “Successful low carbon heat networks projects in countries like Denmark, one of the world’s most energy efficient countries, are well documented, and whilst these are nascent markets in the UK, our research highlights enthusiasm amongst investors for the use of this technology to unlock large-scale renewable energy opportunities.

"It’s important to recognise that the detail investors and developers need is still being developed, and government will use the responses to its zoning consultation to shape the regulations and get this right.”

While data points to high confidence among investors, developers have a more modest outlook on the potential for heat networks, with only 41% viewing it as good or excellent. This more cautious attitude may be influenced by their experience to date of getting projects off the ground as they’re having to navigate complex and time-consuming planning and construction pitfalls and upskill a workforce that lacks the design, mechanical, and engineering know-how needed to deliver profitable heat networks projects.

60% of developers also cite a strong supply chain as vital to encourage investment and over half, 52%, claim that the UK’s current weakness in this area is the top risk for the development of heat networks. Developers’ first-hand experience of the fragmented nature of supply chains, which continue to feel the impact of labour and material shortages and higher inflation rates, may well explain their reluctance to take on the risks.

Charles added: “The development of heat networks represents a tremendous opportunity – not just for investors and developers, but also for a workforce that needs the green skills necessary to take the UK into a low carbon future. While primary legislation is now in place, further work is needed on the detail of implementing the Energy Act framework, to bring greater clarity to investors and developers so that they can see their challenges and concerns are being recognised and addressed.

"Getting these issues right will allow heat networks to grow in a way that will make a really important contribution to driving down our overall carbon emissions while reducing our dependence on fossil fuels.”