Call for Ofgem to regulate UK heat networks

The UK’s Competition and Markets Authority (CMA) has today called for a regulator to be established to oversee Britain’s heating networks.

The proposal comes after the CMA carried out a seven-monthà‚ studyà‚ into the heat networks industry.

The investigation set out to establish whether heat network customers are getting the right level of protection.

Heat networks provide homes with heat and hot water from a central source via insulated pipes, but unlike other energy services, are currently not regulated. As a result, heat network customers in general have less consumer protection if things go wrong.

The CMA found many heat networks offer prices that are the same or lower than those paid by people on gas or electricity, and customers receive comparable levels of service.

However, a number of those on privately operated networks are getting poorer deals in terms of price and service quality, and there is a risk this problem could grow.

There are currently about 450,000 customers of these services, and that number is expected to grow significantly as investment in energy efficient technology increases.

The CMA is recommending that the regulator, once it is established, introduces consumer protection for all heat network customers so they get the same level of protection as customers in the gas and electricity sectors; addresses low levels of transparency so customers know they are on a heat network and there are clear agreements or contracts between customers and heat network operators; makes sure customers are aware of what they are paying as this is often unclear; and protects customers from poorly-designed, built and operated heat networks by preventing developers from using cheaper options to meet planning regulations that end up being paid for by the customer over the longer term.

CMA chief executive Andrea Coscelli said: With 14,000 heat networks supplying 450,000 people with heating across the UK, they can be an efficient and environmentally-friendly way for people to heat their homes.

“But there are problems with how some operate, especially for those in private housing. People must benefit from the same level of protection as those using gas or electricity, and not be penalised either by paying too much or receiving a poor-quality service.

“There is currently no regulator for this part of the energy sector ” we think that is one of the key problems to be addressed and we recommend Ofgem is given this role.”

Ofgem chief executive Dermot Nolan said: “Our principal aim is to protect the interests of current and future energy consumers. We welcome the CMA’s Market Study on heat networks and agree that heat network customers should get the same level of protection as customers in the gas and electricity sectors.

“We look forward to continuing to work with the government to address the current and future challenges in decarbonising heat and would welcome the opportunity to contribute to the development of the future regulatory arrangements for heat networks.”

The Association for Decentralized Energy (ADE) welcomed the CMA call for Ofgem to oversee heat networks. ADE Director Dr Tim Rotheray said: “We welcome that the CMA has recognised the real customer benefits that heat networks can deliver, providing heat at the same or lower cost than other forms of heat.

“The CMA has acknowledged heat networks can deliver real customer benefit and recognised that industry is already taking action to ensure all customers on heat networks receive these benefits. This is recognition that industry isn’t paying lip service to driving up standards but actively implementing changes to ensure all customers enjoy a positive heat network experience.”

Dr Rotheray urged the UK government to now consider how to reduce investment risk on heat networks as well as ensuring customer protection when developing a regulatory framework. Doing so, he said, will ensure customers receive maximum benefit from regulation in the form of lower cost bills.

“The ADE will continue to work with all stakeholders, including the CMA and government, to ensure future regulation is well designed and that all parties appreciate the importance of addressing the demand risk of heat network investment as part of this,” he said.

“Securing investment and protecting customers are two sides of the same coin; contented customers are key to investors being confident and willing to invest, whichà‚ in turn drives down investment cost and so customers’ heat bills.”

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