CMA considers regulation for heat networks

Heat networks should be subject to statutory regulation, the competition watchdog has recommended.

The interim report of the Competition and Markets Authority’s (CMA) investigation of heat networks, published today (10 May), finds that many offer prices which are the same or lower than people on a gas or electricity tariff and have comparable levels of customer service.

The average prices on the large majority of heat networks within a sample taken by the CMA are “close to or lower” than the price of comparable gas heating.

However, it finds some network customers, mainly living in privately owned or rented properties, pay “considerably more” for their heat.

And it says that across the board heat network customers are not getting the same levels of protection received by gas and electricity customers.

The CMA’s concerns are compounded by the lack of choice available to heat network customers who will be unable to benefit from the legislative cap currently being introduced on standard variable tariffs.

The watchdog says some property developers are passing on the upfront costs of installing networks, resulting in higher ongoing operating bills for customers.

Some heat networks may be being installed to meet planning requirements, rather than providing the best solution for customers, it adds.

As customers often have no alternative sources of heat, they may be locked into long-term contracts and so cannot hold suppliers to account on price or quality.

To address these concerns, the CMA has provisionally recommended a statutory regime covering:

• Adherence by all suppliers to mandatory rules and criteria around price and quality in long-term contracts
• Better information on networks, provision of heat supply agreements or contracts and clearer and more detailed bills
• Consumer protections for all heat network customers, providing benefits such as complaints handling and access to an ombudsman and support for vulnerable customers
• Steps to improve the design and build of networks

The report says an estimated 14,000 heat networks provide around 2 per cent of UK buildings heat demand.

The Committee on Climate Change has forecast that this proportion must increase nine-fold by 2050 for the UK is to meet its carbon targets cost effectively.

The CMA is consulting on the report’s recommendations, some of which will require some primary legislation to be taken forward, until 31 May 2018. It will then publish a final report in the summer.

Rachel Merelie, senior director, delivery and sector regulation at the CMA, said: “Heat networks can play an important role in cutting carbon emissions and keeping down energy bills, but some customers are not getting a good deal for this essential service.

“There is currently no regulator with responsibility for heat networks, so customers do not automatically benefit from the rights and protections that gas and electricity customers receive.”

Responding to the CMA report, Alex Neill, Which? managing director of home products and services, said: “With more and more people getting their energy through heat networks, action is needed to ensure that consumers are better protected. We’ve heard from people who have had issues with their bills, have struggled to get their complaints resolved, and who have not been given clear information about these networks before moving into a property.

“The competition authorities are right to recommend steps to make heat networks better regulated, to ensure that people have access to an ombudsman and to give them clear and transparent information. It’s vital that this now results in a better deal for the half a million households who get heating through these schemes.”

Gillian Guy, chief executive of Citizens Advice, welcomed the announcement as a “victory” for the hundreds of thousands of heat network customers who have “no choice but to put up with a lack of basic consumer protections”.

“The regulation of heat networks is essential to ensuring that the poor practice of today doesn’t become the standard practice of tomorrow.

“People have a right to expect reliable, affordable and accessible heating. The failure to regulate heat networks means that too many people suffer with high bills and poor customer service.”

Lawrence Slade, Energy UK’s chief executive, added: “Heat networks can often result in lower bills for customers and help reduce the emissions produced from heating our homes and businesses so it is important to ensure these customers have the same protections as those connected to the gas network.

“As we set out in our recent report, Kick-starting the Decarbonisation of Heat, it is essential that we see action without further delay if we are to continue to meet our emissions reduction targets. Establishing consumer protection is an important first step in ensuring that we can deploy large-scale, low carbon heating in a way which best meets the needs of the customer.”