Energy UK response to HNTAS consultation

Executive Summary

Energy UK welcomes the steps being taken to improve heat network standards and consumer outcomes, and the work that has been undertaken to develop the draft Heat Networks Technical Assurance Scheme (HNTAS). Heat networks are set to play a crucial role in decarbonising heat, with the Government’s Warm Homes Plan aiming for 7% of heat to be supplied by heat networks in 2035, and 20% by 2050. Establishing technical standards will be critical for heat networks to perform effectively and deliver good outcomes for consumers, including fair prices and minimal disruption.

Adopting an outcomes-based approach to regulation by streamlining technical and governance requirements

Energy UK supports the adoption of an outcomes-based approach to raising technical standards through HNTAS. This could be achieved with less focus on the detailed input specifications and greater emphasis on a smaller number of crucial Key Performance Indicators (KPIs). The KPIs should be based on critical determinants for the successful operation of a network, e.g. return temperatures. Reporting requirements for KPIs should also be aligned with those within the Ofgem consumer protections framework, for example quarterly or annual. Ultimately, for domestic customers and small businesses, the prices that they are charged for heat, and the quality of service provided will be measured through the data collected as part of Ofgem’s consumer protections regime.

An outcomes-based approach will encourage the implementation of a more efficient, proportionate and cost-effective scheme, which can help deliver improved and more consistent consumer outcomes across the sector.

Energy UK would like to see continued refinement of the proposed HNTAS scheme, developed in collaboration with industry. HNTAS should be a proportionate and practical scheme that delivers for both consumers and supports growth in the sector. Energy UK is concerned that, as proposed, HNTAS introduces risks to new heat network developments and their investors, including higher costs driven by complex technical compliance requirements.

As proposed above, streamlining of the technical requirements of the scheme could include reducing the number of KPIs that must be reported on. Refinement can also be achieved within the proposals around governance to reduce the scale of third-party assessment required across multiple gateways. An option which should be considered is to enable heat network operators to develop in-house assessments teams who can self-certify minor stages of the HNTAS process, would help to streamline compliance and reduce burden on external assessors. This would align with the requirements for training set out by the Code Manager, and would also bring the approach to technical compliance more in line with other parts of the energy industry, such as the approach to the National Electricity Registration Scheme (NERS) and Renewables Obligation Certificates (ROCs).

Energy UK supports the consideration of the proposal for heat network operators to self-certify elements of new network developments in this way. However, we recognise the need for a degree of independent oversight across each individual network to fully certify them and achieve consistent standards. Overall, the HNTAS process should not be more onerous than approaches in other sectors such as in construction where developers are required to notify Building Control and facilitate in-person inspections at relevant stages of construction.

Heat pump customers on ambient and Shared Ground Loop (SGL) networks should be excluded from HNTAS beyond the design and construction phases to help further streamline the technical requirements. These types of networks do not have any central plant or energy centre that requires monitoring in the same way as other heat networks. There is limited consumer and network benefits provided by metering and monitoring in these circumstances, and if anything, the introduction of these standards will likely cause significant disruption to consumers, reduce their consumer choice and add additional costs. Furthermore, extending HNTAS beyond the design and construction phases to ambient loops and SGLs would risk a high degree of regulatory duplication with the Smart and Secure Electricity System (SSES) and MCS regulations for individual heat pumps. Duplicating regulation risks making the installation of heat pumps on ambient and SGL networks significantly more challenging.

Managing the cost burden and timeline of implementing new technical standards on existing networks

There is an important balance to strike in implementing these regulations in terms of the cost of upgrades and consumer benefit. The high cost of any proposed upgrades needs to be balanced against potential household savings derived from better performance and greater efficiencies. The Government estimates that the average cost per dwelling to meet the standard will be £5,500, but with a high degree of variation, suggesting figures of up to £15,000. Streamlining the requirements in relation to the technical standards and governance will help to reduce costs, but it is important to balance the cost of upgrades against the net impact on consumer bills, and ensuring that these costs can be spread out over long timescales as far as possible.

Energy UK welcomes the Warm Homes Fund: Call for Evidence considering options to address the funding challenges posed by HNTAS for heat network operators, especially for social housing providers, local authorities and other not-for-profit entities that own and operate heat networks. The reference in the consultation to the Government exploring options to support the sector to invest in the necessary upgrades while protecting consumers from unaffordable price rises is welcome.

In addition to the cost-benefit trade-off, the timeline for delivery also requires careful consideration. DESNZ should undertake close consultation with professionals responsible for implementing these upgrades within social housing providers and other heat network operators to ascertain the likely realistic timeline for implementation within existing networks, and the projected cost.

Ensuring a cohesive approach to regulatory governance across the sector

There is a strong risk that governance of regulations within the heat networks sector becomes too thinly spread across multiple responsible organisations, including the Code Manager, Ofgem and the Warm Homes Agency. It is, therefore, essential that there is close collaboration and mutual oversight across these bodies to ensure that all regulations are working together to support, and not hinder, development. Collaboration between governing bodies should occur before implementation of new regulations to avoid duplication, for example pricing controls, or requirements on operators to double count metrics.

Delays in achieving compliance with one regulatory framework, for example HNTAS, should not prohibit authorisation under the Ofgem consumer protection framework.

Establishing links or feedback loops between HNTAS, Ofgem’s consumer protections regime, and the proposals for consumer protections reform being undertaken through the Warm Homes Agency will also be important for ensuring that consumers on heat networks are afforded the same support as customers on individual heating systems. This will be most crucial where households on heat networks are seeking support with complaints or redress. They should not be turned away from the Warm Homes Agency when looking for support, but instead be helped to contact the appropriate responsible party.

HNTAS must support development on new build housing sites and in heat network zones

Where heat networks are being incorporated into new build developments, it is important that HNTAS provides certification to new networks at a pace that is aligned with the build-out of the new homes. HNTAS should support more networks to be incorporated into new build sites, rather than acting as a hindrance. HNTAS should require a similar amount of regulation as installing individual heating systems and should avoid enforcing an unnecessary high regulatory burden, which would deter the use of heat networks.

Across all new developments, whether on house building sites or elsewhere, to facilitate more efficient project timelines HNTAS should approve networks on a development basis. This would help avoid delays caused by having to obtain sign off on a building-by-building basis when connecting buildings to heat networks.

It is crucial HNTAS does not compromise heat network’s competitiveness within the new build sector. Energy UK is particularly concerned about the impact that the currently proposed technical standards could have on the viability of heat networks on new build housing sites. Heat networks and shared ground loops provide an efficient and cost-effective solution for new house building schemes of all densities, including new towns. However, as it is proposed, HNTAS could place undue cost pressures on heat network developers, which individual heating systems are not subject to. Therefore, we have significant concerns that the regulation will exclude heat networks from the new build market.

Particular challenges may arise on new build housing sites where developers are typically keen to ensure that buyers can move into new homes as soon as their house is completed, while the rest of the project is continuing to be built. It is essential that HNTAS does not preclude a heat network from supplying to these initial homes because it is a requirement that the network should be compliant from day one of the connection to the new site. For example, for that small initial number of households, the network may be oversized, but this is merely because the housing development has not been completed yet.

Energy UK is also concerned that the proposals are not fit for purpose to enable the development of large, city-wide heat network projects. This is because, across all types of development, heat networks will be built out in stages. In early development, the operator may considerably oversize the main pipe that is connected to the heat source, relative to the requirements of the small number of initial connected buildings. However, as more connections to the network are secured and economies of scale are achieved, the pipe will no longer be oversized. HNTAS needs to be adaptable to the way in which heat networks are developed.

Preparing the supply chain for new technical standards

Investment in skills within the heat network industry needs to be supported by robust policy environment, which demonstrates sufficient ambition to give industry certainty. The introduction of this extensive technical assurance scheme, while critical to forming part of a robust policy landscape, as currently designed will likely cause a shortage of suitably qualified and experienced professionals to fulfil the range of roles outlined. This risks slowing delivery timelines and creates uncertainty for project investment. 

Next steps

Energy UK and its members would welcome further consultation with DESNZ on HNTAS design, in response to the concerns raised above and the detail provided in response to the consultation questions below. Energy UK encourage Government to continue to collaborate with industry and draw from approaches in other industries e.g. Loyd’s Registered Quality Assurance (LRQA) to produce robust technical standards for heat networks.