Funding: the Green Heat Network Fund, HNES and how zones get paid for

Heat networks are expensive to build and cheap to run. Most of the cost comes at the start: digging trenches, laying insulated pipes and building energy centres. The money comes back slowly, as customers pay for heat over decades. That pattern shapes how district heating zones are expected to be funded.

This explainer covers the public funds that support heat networks in England, how they fit together, and how zoning is designed to bring in private investment. It does not cover what a building owner would pay to connect.

The overall budget

The government's main statement on heat network funding is the Warm Homes Plan: Published 21 January 2026, with about £1.1bn for heat networks from 2025/26 to 2029/30[source]. That total covers several programmes, described below. It is spread across this Parliament and is not all for zoning.

Studies and early design: HNDU

Before anyone builds a network, someone has to work out where it should go and whether it would pay. For councils, the Heat Networks Delivery Unit provides: Grants and technical support for council heat network studies in England and Wales[source].

This is the earliest stage of the pipeline. The unit funds feasibility work and helps councils turn ideas into projects that investors would consider. In March 2026 it also opened a call for the next round of zones: Local authorities invited to submit zone opportunity areas by 29 May 2026[source].

Building new networks: the Green Heat Network Fund

The largest grant scheme for new networks is the Green Heat Network Fund, often shortened to GHNF. It provides: Capital grants for new and expanding low-carbon heat networks, with £195m a year confirmed to 2029/30[source].

Grants cover part of the cost of building a network, not all of it, so projects still need other money. The fund supports both commercialisation, meaning the work needed to get a scheme to the point where it can be financed, and construction. Since 2026 it has also been open to projects in Wales.

The fund replaced an earlier scheme: £320m of capital support, now closed and succeeded by the Green Heat Network Fund[source].

Improving existing networks: HNES

Many existing heat networks, especially older communal systems in blocks of flats, waste heat through poor insulation and old controls. The Heat Network Efficiency Scheme targets them: £107m of grants from 2023-24 to 2029-30 to improve existing heat networks in England and Wales[source].

HNES does not build new zones. It matters to zoning because existing networks will often form the starting point for a zone, and because better-run networks make heat cheaper for the people already connected to them.

Early zones: the Advanced Zoning Programme

Zoning cannot formally begin until the regulations are in force. Their status: Not yet laid before Parliament[source]. To avoid losing time, the government has funded early work in selected places through the Advanced Zoning Programme.

The first places named were: Leeds, Plymouth, Bristol, Stockport, Sheffield and two schemes in London, including Old Oak and Park Royal[source]. Government said they would share £5.8m to develop zones. The money pays for the work councils need to do before a zone can be set up, such as detailed design, legal preparation and procurement, rather than for pipes in the ground.

Several of these places have gone on to appoint private partners. Leeds and Old Oak and Park Royal have each named a development and funding partner, and Plymouth has appointed a delivery partner. These are council appointments made ahead of the regulations, not statutory zone developers.

The government has also said what comes next: At least 10 of the biggest English towns and cities to get government support to set up zones soon after the zoning regulations go live[source].

Where most of the money is expected to come from

Public grants are not expected to pay for whole zones. The design of zoning is meant to make heat networks attractive to private investors, who would provide most of the capital.

The key mechanism is exclusivity. Under the policy, a zone developer is Appointed through competition, with exclusive rights to develop a heat network in the zone delivery area[source]. Exclusive rights reduce the risk that a rival network will compete for the same customers. Combined with the requirement for certain buildings to connect, they give investors more confidence that a network will have enough customers to repay its costs.

In simple terms, the model works like this:

1. Public money funds studies and early development, so that a zone is ready to offer to the market.
2. A developer is chosen by competition and given rights to build and run the network in the zone.
3. The developer raises private finance, sometimes topped up by a GHNF grant, and builds the network in phases.
4. The developer recovers its investment over many years from the price customers pay for heat, under the consumer rules Ofgem now enforces.

The detail of how zone developers will be selected and what they will be allowed to charge depends on the regulations and on Ofgem's rules. We cover the regulator on our Ofgem page.

Why government thinks this is worth paying for

The case the government makes is partly about carbon and partly about the wider energy system. Its ambition for 2035 is: 7% of England's heat (27 TWh) by 2035[source].

It also argues that heat networks reduce pressure on the electricity grid, because one large heat source can serve many buildings that would otherwise each need their own electric heat pump. The Warm Homes Plan puts a figure on this: £5bn to £7bn of avoided upgrades to the electricity distribution network by 2050[source]. That is a modelled estimate, not a measured saving.

What is not yet clear

Some funding questions remain open. It is not yet known how much public support each of the first full zones will receive after the regulations come in, or how support will be divided between the government's commitment to the biggest towns and cities and smaller places. We have not found a published total for the Advanced Zoning Programme beyond the first allocation.

We will update this page as funding decisions are announced. Each one is logged in the changelog and on the timeline.