Heat Network Tariff Methodology

The HNC Tariff Tool generates tariff calculations and supporting documentation for heat network operators preparing for Ofgem authorisation.

Methodology structure

The methodology is structured around three components:

1. Cost allocation — categorising network costs across capital, operational, and maintenance expenditure, consistent with AC A7 (Cost Allocation), which requires charges to be structured and attributable to costs in a way that is consistent with the outcome of charges being fair and not disproportionate.
2. Counterfactual comparison — benchmarking the delivered cost of heat against a relevant alternative heating source, consistent with Ofgem's Heat networks regulation: fair pricing and cost allocation guidance (January 2026).
3. Documented justification — generating a written tariff justification suitable for regulatory review and inclusion in the operator's authorisation documentation.

Regulatory alignment

Outputs are designed to support compliance with Ofgem authorisation conditions A6 (Fair Pricing) and A7 (Cost Allocation) under the Heat Networks (Market Framework) (Great Britain) Regulations 2025 (SI 2025/269). AC A6 requires that charges imposed on consumers are fair and not disproportionate. AC A7 requires that those charges are structured and attributable to costs in a way consistent with that outcome.

For the full regulatory context, see Ofgem fair pricing requirements for heat networks.