The Energy Act 2023 received Royal Assent in October 2023 and is the most significant energy legislation in over a decade. For business energy customers, the most relevant provisions cover expanded Ofgem powers, the new National Energy System Operator framework, heat network regulation (affecting commercial premises in heat network zones), and the hydrogen and low-carbon energy frameworks relevant to industrial users. Most provisions are being implemented over a multi-year period through secondary legislation.
Last reviewed: 12 May 2026
What the Energy Act 2023 Is and Why It Matters
The Energy Act 2023 received Royal Assent on 26 October 2023 following an extended passage through Parliament during which the energy crisis of 2021 to 2023 provided an unusually vivid backdrop to legislative debate about energy security, market structure, and the transition to net zero. The Act runs to over 300 sections and 20 schedules, covering everything from electricity market reform to the regulation of hydrogen, heat networks, and carbon capture.
For most business energy customers, the Act's significance is structural rather than immediate: it creates new frameworks and expands regulatory powers that will be exercised through secondary legislation and regulatory programmes over the coming years. The sections most directly relevant to commercial energy buyers concern the establishment of the National Energy System Operator (NESO), reforms to Ofgem's powers, heat network regulation, and the hydrogen industry framework.
The Act's explanatory notes, published by DESNZ alongside the legislation, provide a section-by-section guide to the policy intent behind each provision. These notes, available on gov.uk, are the most accessible primary source for understanding what each part of the Act was designed to achieve and the timeline for implementation.
The National Energy System Operator: What NESO Means for Commercial Buyers
Part 1 of the Energy Act 2023 established the framework for a new National Energy System Operator (NESO), intended to replace the functions previously performed by the National Grid Electricity System Operator (NG ESO) with a publicly owned independent body responsible for whole-system energy planning and operation across both electricity and gas.
NESO became operational on 1 October 2024 following the UK government's acquisition of the Electricity System Operator function from National Grid plc and its transfer into public ownership. NESO is a publicly owned, operationally independent body, regulated by Ofgem under an Electricity System Operator licence and a Gas System Planner licence. For commercial energy buyers, the significance of NESO lies primarily in its system planning functions: it is responsible for the long-term network and generation investment plans that determine the infrastructure available for commercial energy supply over the next decade and beyond.
More immediately relevant to businesses on flexible or pass-through electricity contracts, NESO's role in balancing services and settlement has direct implications for the non-commodity cost components of electricity bills. As NESO's operational frameworks bed in, commercial buyers on pass-through contracts can expect changes to the balancing services cost components that flow through to their invoices.
Expanded Ofgem Powers: Enforcement and Consumer Protection
The Act significantly expanded Ofgem's enforcement toolkit. New provisions allow Ofgem to impose higher financial penalties on licensed suppliers, to require suppliers to redress schemes for customers who have experienced harm, and to act more swiftly against suppliers whose financial resilience poses a risk to customers and the wider market.
The financial resilience provisions were a direct response to the supplier failures of 2021 and 2022, during which over 28 domestic and non-domestic suppliers exited the market, leaving customers to be transferred to suppliers of last resort. The Act requires suppliers to maintain minimum financial resilience standards and gives Ofgem stronger powers to intervene before a supplier failure reaches the point of market exit.
For business customers, particularly those on longer fixed-price contracts, these provisions reduce (though do not eliminate) the risk that the supplier they contracted with will exit the market before the contract completes. Supplier failure during a contract term creates significant disruption, as businesses are transferred to a supplier of last resort and often placed on default rates until a new contract is arranged.
Heat Network Regulation: Commercial Premises in Heat Network Zones
Part 7 of the Energy Act 2023 established a regulatory framework for heat networks, which supply heat and hot water to multiple buildings from a central source. Heat networks are common in urban regeneration developments, mixed-use commercial and residential schemes, and some business parks. Previously, heat network customers had very limited regulatory protections: heat networks were not regulated by Ofgem and customers had no equivalent of the energy supplier complaints process.
The Act created a new regulatory framework under which Ofgem was designated as the heat network regulator. Operators of heat networks supplying commercial premises are subject to licensing requirements, price transparency obligations, and a consumer redress framework. For business tenants or owners in heat network zones, this represents a material improvement in their regulatory position.
Implementation has progressed substantially since the Act received Royal Assent. From 1 April 2025, secondary legislation brought the Energy Ombudsman into scope for heat network disputes, and from 27 January 2026, all heat networks must register with Ofgem as the regulator. Commercial premises connected to heat networks should check whether their network operator has completed the required registration and the specific compliance obligations applicable to their connection type, as the rollout continues to be phased by customer category and network type.
Hydrogen and Low-Carbon Frameworks: Relevance for Industrial Energy Users
Parts 2 and 3 of the Act establish frameworks for hydrogen production, low-carbon hydrogen agreements, and the development of hydrogen transport and storage infrastructure. These provisions are primarily relevant to industrial energy users and energy-intensive businesses that are potential hydrogen off-takers as the hydrogen economy develops.
The low-carbon hydrogen agreement (LCHA) framework provides a revenue support mechanism for hydrogen producers, modelled on the Contracts for Difference (CfD) scheme for electricity. It is designed to make the economics of low-carbon hydrogen production viable during the early development phase of the market.
For energy-intensive businesses considering hydrogen as a future energy source for process heat or industrial applications, the LCHA framework is the policy mechanism that will determine the pace and cost at which commercial hydrogen supply becomes available. DESNZ has published implementation timelines and the first hydrogen production LCHA allocations were made in 2023 and 2024 under the framework established by the Act.
The Climate Change Committee's published analysis of the industrial decarbonisation pathway identifies hydrogen as one of the primary routes for decarbonising processes that cannot readily be electrified, including high-temperature heat in ceramics, glass, steel, and chemicals manufacturing.
Implementation Timeline and Secondary Legislation
A substantial proportion of the Energy Act 2023's provisions require secondary legislation and regulatory implementation programmes before they take practical effect. DESNZ publishes an implementation tracker on gov.uk that sets out the status of each provision and the expected timing of the relevant secondary legislation or regulatory programme.
Key implementation milestones relevant to business energy customers include the heat network licensing regime commencement, the NESO operational framework, and the enhanced Ofgem enforcement powers. Businesses affected by specific provisions, such as those in heat network zones, should monitor the relevant secondary legislation and Ofgem implementation announcements for the date from which the provisions apply to their circumstances.
Frequently Asked Questions
Editorial disclaimer: The information below is provided for general guidance only. The Energy Act 2023 is being implemented over a multi-year period through secondary legislation. Verify the current implementation status of specific provisions against DESNZ published implementation documentation at gov.uk.
Does the Energy Act 2023 change any of my current energy contract rights?
Most of the Act's provisions do not directly alter existing commercial energy supply contract rights, which continue to be governed by supply licence conditions and general contract law. The main areas of potential direct relevance to existing contracts are the enhanced Ofgem enforcement powers (which may affect how licence breaches by your supplier are handled) and the heat network provisions if your premises are served by a regulated heat network.
What is NESO and how does it differ from National Grid ESO?
The National Energy System Operator (NESO), established under the Energy Act 2023, is a publicly owned independent body that took over the electricity and gas system operation and whole-system planning functions previously held by National Grid Electricity System Operator (NG ESO), which was a private company within the National Grid group. The key difference is the shift from private to public ownership and the addition of whole-system planning responsibilities covering both electricity and gas, including long-term infrastructure strategy.
If my commercial premises are on a heat network, what rights do I now have?
The Energy Act 2023 established Ofgem as the regulator for heat networks, replacing the previous position where heat network customers had minimal regulatory protections. The framework includes licensing of heat network operators, price transparency requirements, and a redress scheme for customers. The implementation is phased through secondary legislation. Check Ofgem's published heat network regulatory programme for the current status of protections applicable to commercial customers in heat network zones.
Is the hydrogen framework relevant to small businesses?
For most small businesses, the hydrogen provisions of the Act are not immediately relevant. The hydrogen frameworks are primarily directed at large-scale industrial users, energy-intensive manufacturers, and the infrastructure sector. Small businesses using gas for heating and hot water will not be directly affected by the hydrogen provisions in the near term, though the longer-term policy trajectory points toward decarbonisation of gas networks, which will affect all gas users over time.
How does the Energy Act 2023 interact with the net zero commitment?
The Act is the primary legislative vehicle for several of the market structures and regulatory frameworks needed to deliver the UK's statutory net zero commitment under the Climate Change Act 2008. The CCC's published analysis of the Act identified it as providing necessary but not sufficient conditions for net zero: the frameworks are in place, but delivery depends on the pace and scale of the investment and regulatory implementation that follows. For businesses, this means the net zero transition will increasingly be reflected in energy market structures, costs, and obligations over the period covered by the Act's implementation.
How we verified this
This article draws on the Energy Act 2023 as published on legislation.gov.uk, the DESNZ explanatory notes to the Act published on gov.uk, Ofgem's published implementation programme for heat network regulation, and the Climate Change Committee's published analysis of the Act's net zero provisions. NESO operational details are verified against DESNZ and Ofgem published announcements on the NESO transition.
Sources
- Energy Act 2023, legislation.gov.uk
- DESNZ Energy Act 2023 factsheets and explanatory notes
- Ofgem heat network regulation implementation programme
- Climate Change Committee 2024 Progress Report to Parliament
For the electricity market reform programme that runs alongside the Energy Act 2023 provisions, see REMA and business energy UK. For the net zero obligations that the Act's frameworks are designed to support, see net zero business energy UK.
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