Benefits of price cap for heat networks ‘outweighed by risks to consumers’

The government has doubled down on its previous assertion that introducing a price cap for the heat networks market would do more harm than good.

The proposal that price regulation, such as a price cap or profit regulation, should not be introduced in the near term was supported by more than half (55%) of respondents to a consultation on heat networks regulation run by Department for Energy Security and Net Zero (Desnz).

Consequently, the government’s response to the consultation concludes that “the benefits of a price cap are outweighed by the risks to consumers, given the nascent and diverse state of the market”.

However, it adds they the government is “acutely aware of the impact high and volatile energy prices can have on consumers, [which] can lead to high consumer debt, presenting risks for both consumers and risks to supplier solvency”.

Therefore, the government has committed to reviewing its stance on price regulation on a regular basis.

The Heat Trust recently called for support for the 500,000 households living on communal and district heating networks in the UK, warning that heating networks are currently excluded from any protection created by the price cap.

While shunning the idea of introducing a price cap for heating networks, the government’s response does set a series of new regulations which will be introduced from 2025.

These include:

• Ofgem will begin operating as regulator and administering the authorisation regime. This will involve all operational heat suppliers and heat network operators being automatically authorised to continue operating subject to them meeting notification requirements set by Ofgem.
• Introduce heat network zoning in England from 2025. Through powers relating to zoning in the Energy Act 2023, areas may be designated as ‘heat network zones’ where heat networks are expected to be the lowest cost solution for decarbonising heat. These powers also provide that certain buildings in zones may be required to connect to district heat networks within a specified timeframe.
• Standards of Conduct and rules on transparency of information, complaints handling, protecting consumers in vulnerable circumstances, and metering to come into force.
• Develop Guaranteed Standards of Performance with compensation requirements introduced.
• Consumer support to be provided from Energy Ombudsman and Citizens Advice.

Lord Callanan, energy minister, said: “Heat networks are expected to support millions of households in the years ahead, as families look to cleaner ways to heat their homes.

“That is why it is vital we ensure customers connected to these heating systems enjoy the same protections as other households in our energy market.

“Today’s announcement will help deliver fairer prices, compensation and more transparent bills, ensuring more families can enjoy the benefits of heat networks.”

Cathryn Scott, Ofgem director for enforcement and emerging Issues said that the regulator will now begin working with government to design a regulatory framework which “will include consumer protections in the areas of vulnerability, billing and pricing and a route for escalating matters to the ombudsman”.

Stephen Knight, director of Heat Trust, added: “As the national consumer champion for heat networks, Heat Trust has long campaigned for the regulation of the sector and we therefore welcome this important milestone.

“These new regulations must achieve tangible improvements in customer experiences in terms of pricing, reliability and customer service if consumers are to gain confidence in district and communal heating systems.”