To significantly reduce carbon emissions we need to upgrade millions of homes with low-carbon technologies and other energy efficiency improvements. This requires high levels of consumer trust, engagement and the right incentives and funding. Doing it quickly, efficiently, and in a way which minimises costs will require planning and coordination at a regional and national level. 

Distribution network operators (DNOs) already play a central, though often overlooked, role in enabling electrified heat: they maintain local electricity networks and approve connections for heat pumps, electric vehicle chargers and solar generation. As Ofgem begins shaping the next price control period (ED3) for DNOs (the regulation governing what DNOs spend and what they must deliver), there is growing interest in whether DNOs could take on a broader role in planning, financing and coordinating heat decarbonisation.

Despite recent growth in heat pump uptake, mainly driven by government funding such as the Boiler Upgrade Scheme (BUS) and the recently scrapped Energy Company Obligation (ECO), the rollout of clean heat is falling short of what is needed to meet net-zero targets.

We identify four key system-level barriers:

To address these barriers and accelerate heat decarbonisation, new or expanded roles might be needed. Action could be taken by different players across the value chain to fill these roles.

Networks are currently responsible for ensuring adequate grid capacity for heat electrification, connection of low-carbon technologies to the network, maintaining network resilience and providing flexible products for demand side response. Central to these efforts is the role to provide data and infrastructure. DNOs also contribute to wider system planning efforts, eg, through regional energy strategic plans (RESPs), network development plans and local area energy plans (LEAPs). We are seeing some signs that these responsibilities are expanding, for instance some DNOs are starting to take a proactive approach in identifying homes that may need their supplies upgraded.   

There is a spectrum of ways that DNO involvement could evolve. Here we have mapped out an incremental and radical version to illustrate the range. Incremental roles build on today’s DNO activities, while in a more more radical version DNOs might take full ownership of planning, financing, delivery, and customer relationships for heat decarbonisation.

Expanding the role of DNOs could present regulatory, financial, operational, customer and strategic risks. It would require significant regulatory reform, raise monopoly concerns and expose DNOs to new financial liabilities, including credit and stranded-asset risks that could increase consumer bills. Rapid deployment could strain networks and demand new operational capabilities, while customers may face reduced choice and weaker protection. Strategically, moving into heat services could divert focus from DNOs’ core responsibilities for network reliability and modernisation.

Nesta will be working over the next few months to understand the full spectrum of roles a DNO could play, assessing how these models could work in practice and evaluating their benefits, risks and regulatory implications. Our work will help inform policymakers, regulators and industry on whether, when and how an expanded DNO role could support a faster, fairer and more coordinated transition to low-carbon heat. We think any such proposition will need to answer these key questions:

1. Would an expanded role for DNOs meaningfully accelerate the decarbonisation of heat? Which specific blockers would it address?
2. Would it reduce overall costs of the heat transition? Would it reduce overall costs for consumers?
3. Is the change deliverable? What regulatory, technical, supply chain and market considerations need to be explored to give confidence that this will work in practice?