Tariffs · Ofgem Fair Pricing
Ofgem fair pricing for heat networks — what operators need to know
Ofgem's fair pricing framework requires heat network suppliers to demonstrate that what residents pay reflects transparent, properly allocated costs. Tariffs set by convention or approximation will not pass the fairness test.
What the framework is
The Ofgem fair pricing framework governs how heat network suppliers set and justify prices. It is being developed in phases: the consultation closed July 2025, with Ofgem now consulting on fair pricing principles guidance and cost allocation guidance. It is not a price cap — it is a requirement to demonstrate that your pricing is fair, transparent and based on properly allocated, documented costs.
The fairness test — in practice
Your tariff will need to demonstrate:
- It reflects the actual, reasonable costs of supplying heat
- Customers can understand what they pay for and why
- No costs unrelated to heat supply are included
- It is set using a documented, verifiable methodology
The cost allocation problem
The most contested area. What proportion of running your network is fairly attributable to the heat supply residents pay for? Common problem areas:
- Standing charges — what overhead costs can legitimately be recovered. See standing charges guide
- Energy cost passthroughs — how fuel cost changes are passed to residents and whether this is transparent
- Maintenance cost recovery — distinguishing routine maintenance from capital replacement
- Management fees — where managing agents are involved, what portion relates to heat supply
What you need to document now
- A written tariff methodology — how your unit rate and standing charge are calculated
- A cost allocation model — which costs are attributed to heat supply and on what basis
- An annual review process — undated tariffs are a compliance risk
- A process for communicating tariff changes to residents with adequate notice
Frequently asked questions
Does the framework apply to existing tariffs?
Yes. Tariffs that have been in place for years will need to meet the fairness test once the framework is in force. There is no legacy exemption.
Will Ofgem set the price residents pay?
No. There is no heat network price cap. Ofgem requires that prices are fair and documented, not that they meet a specific level.
What's the difference between fair pricing and tariff compliance?
Fair pricing is the Ofgem principle. Tariff compliance is the practical evidence that you meet it — a documented, reviewable methodology. You can be charging the right amount but still be non-compliant if you cannot evidence how you arrived at it.