Regulating Heat Networks: Energy Security Bill to the Rescue? 

By: Ben Holland and Ruth Chang

Issues With the Current Heat Networks Regime?

Heat network customers have reported price increases of up to 700% since late 2021.

Heat networks are not currently regulated, and most customers are not covered by the energy price cap (i.e. the Ofgem price-cap does not apply).

What Are Heat Networks?

A heat network – sometimes called district heating – is a distribution system of insulated pipes that takes heat from a central source and delivers it to a number of domestic or non-domestic buildings. There are currently around 14,000 UK heat networks and half a million customers. Heat networks can cover a large area, or even an entire city, or can be fairly local supplying a small cluster of buildings. Most of the heat networks in the UK are concentrated in England (around 86%)

There are, generally, two types of heat networks: district heating and communal heating.

How Does Communal Heating Operate?

Communal heating is the supply of heat and hot water, from a source usually known as the energy centre, to a number of customers within one building only. The energy centre often consists of a single large boiler in the basement of a building with the heat and hot water distributed through the building via a series of pipes.  

About 85% of all heat networks are communal heat networks.

How Does a District Heating System Operate?

District heating involves a local energy centre that supplies heat and hot water to customers in more than one building. District heating networks can range in size from a few hundred metres supplying just a few homes to several kilometres of pipe supplying heat and hot water to multiple buildings in a development.

What Are the Advantages of Heat Networks?

Generally the usage of heat networks will bring about these benefits:

  • In urban areas it is cheaper to install than individual systems in each building.
  • It is more resilient to fuel price shocks or individual generation assets failures.
  • Easier to decarbonise.
  • Delivery of cheaper heat to the end users.
Who Can Be a Heat Network Supplier?

The heat network supplier is the organisation that is contracted to provide heating and/or hot water to each property. They will provide the heat supply agreement (or customer charter) to each occupant on the heat network.

Various organisations can fulfil this role. For instance:

  • A specific heat network company (ESCO);
  • Property developer;
  • Housing Association;
  • Local authority;
  • Management company; or
  • A company set up by the freeholder to operate the heat network.

There are voluntary standards intended to provide consumers with some form of protection (most notably the Heat Trust scheme, which is a non-profit consumer champion for heat networks) and some standardisation around the minimum level of service customers can expect to receive from a heat network. 

Yet, looking at it on an overall terms, heat networks remain largely unregulated and dissatisfaction towards the transparency of information, or pricing aspects, or the collection of personal data, or billing and metering issues, remain some common complaints for all heat customers.

Is the Government Intervening (If at All)?

The recent Energy Security Bill (the Bill) is one of the government’s attempts in regulating heat networks.  The Bill was introduced to Parliament on 6 July 2022, aiming to deliver on the whole a cleaner more affordable and more secure energy system.

The Bill initiates important steps towards extending Ofgem’s regulatory oversight to cover heat networks. The Bill appoints Ofgem as heat networks regulator with a view to regulating heat networks, in similar ways to other utilities, with a general aim of delivering transparent information for consumers, fair and reasonable prices, minimum technical standards and  good quality services, alongside specific measures to comply with the government’s general objectives on decarbonisation. 

The Bill also provides the BEIS Secretary of State with powers to introduce various forms of price regulation, including a price cap. It also now seeks to enable heat network zoning to identify areas where there is provision for the lowest cost solution to heating buildings.

Whilst the contents of the Bill are yet to be finalised, it is expected that the relevant regulations may come into force, as soon as the earlier part of 2024 (or towards the end of 2023). However, this timeframe may prove far too late in helping the current crisis.

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