People who rely on heat networks to keep their homes warm are set to benefit from a new regime of consumer protections, with oversight from energy regulator Ofgem.
This new framework of regulations aims to raise standards across a range of services, including the prices customers pay for the heat they use, and the quality of communications they receive from heat network companies.
Between now and January 2026, when the regulations come into force, the Department for Energy Security and Net Zero (DESNZ) and Ofgem are talking to customers and the energy industry about what the implementation of these regulations should look like. Energy UK recently submitted its responses to the Government’s latest consultations.
All energy customers should have access to support, protections, advice and redress, to have confidence in the services they receive.
The best way to expand the heat networks sector is by securing the trust of consumers
Heat networks are systems of networked pipes that transport heat from a central source, such as a large heat pump or communal boiler, to connected buildings or homes within a building. Just 3% of space heating demand across the UK is currently met by heat networks, and delivered by around 14,000 systems of varying age and technological maturity. The majority of customers are social housing residents. However, due to a lack of data about the size and shape of the sector, the exact numbers are unclear.
Improving the experience of these customers is fundamental to expanding the UK heat network sector, which is projected by the Climate Change Committee to meet 20% of space heating demand by 2050. This would deliver a huge boost to the economy, with the potential to attract up to £80 billion of private investment into the UK. With heat networks being inherently local, they also create both construction jobs and long-term maintenance roles in the communities they serve.
Heat networks support the Government’s Clean Power 2030 Mission, through delivering low-carbon heating and reducing demand on the grid with flexible capacity. Heat networks sited in strategic locations can also recycle cheap waste heat for use in homes and buildings, such as heat from the London Underground or data centres.
The most important part of the energy system, however, is the customer. All energy customers should have access to support, protections, advice and redress, in order to have confidence in the services they receive. Improving the experience of heat network customers through a new consumer protections framework is the best means of growing the sector at pace and scale.
This would deliver a huge boost to the economy, with the potential to attract up to £80 billion of private investment into the UK.
How the Government’s proposals for consumer protections can be improved
The consumer protections framework, and the way that it will be implemented by Ofgem, needs to be designed with a growing market front of mind. Indeed, spades are already in the ground on six pilot projects for new heat networks in towns and cities across the UK, including Leeds and Sheffield.
Principles-based regulation that is adaptable to a changing market can help ensure heat network companies can improve their services and tailor solutions to meet the needs of specific customers. Furthermore, the regulation needs to be proportionate and practical, as the best way to raise standards and protect consumers is to support heat network suppliers and operators to achieve compliance.
Introducing a consumer protections framework for a previously underregulated industry is a significant policy challenge and a major step-change for the industry. An iterative approach can help ensure that the regulations are best aligned to the evolving needs of consumers, and led by the evidence gathered by Ofgem, Citizens Advice and Consumer Scotland as they build a picture of the sector. An iterative approach will also help to provide the stable policy environment that is needed to draw investment into the UK.
It is welcome to see that the Government has adopted this approach for activities such as pricing, and rightly proposed prescriptive measures where appropriate, such as in the case of pre-payment meters and disconnections.
Principles-based regulation that is adaptable to a changing market can help ensure heat network companies can improve their services and tailor solutions to meet the needs of specific customers.
The proposals for step-in arrangements need re-thinking
Energy UK is calling for a re-think when it comes to the step-in arrangements, which govern what happens if a heat network company fails through insolvency. The consultation proposes a two-pronged approach to step-in, requiring commercial agreements and a regulatory backstop. In industry’s view, however, these commercial agreements are not reflective of current market arrangements and would be challenging to implement. As it stands, the step-in proposals are too complex, and do not provide quantifiable additional benefit to the consumer to merit the cost and resource that would be needed to implement them.
A simpler approach would be to just have the regulatory backstop, in the form of a single scheme, such as an appropriate iteration of the Special Administration Regime, and which is managed by Ofgem.
This aspect of the new consumer protections framework needs to be reconsidered with market expansion in mind. The new protections can be a launchpad for the UK heat networks sector to grow, but they need to be proportionate and deliver quantifiable value to the customer.
