Government sets out approach for regulating heat networks

The government has set out its proposed approach for introducing regulation to the heat network sector following the appointment of Ofgem as the regulator last year.

In a consultation published on Friday (4 August) the Department for Energy Security and Net Zero (DESNZ) is proposing to use a combination of high-level principles with prescriptive rules to help protect customers using heat networks.

DESNZ said a balance of the two options will help prevent the introduction of regulation from stifling innovation in a key sector for net zero, while also protecting vulnerable customers and setting minimum standards for reliability.

The consultation follows a report published by the Energy Systems Catapult (ESC) in June which recommended a balance of the two approaches, noting that the balance may need to shift over time as the industry becomes accustomed to being regulated.

Given the regulation will apply to 14,000 network market participants, with some networks being as small as just ten customers, regulation will also need to be proportionate to ensure the smallest network operators are not unduly burdened while also ensuring the most vulnerable customers are protected, it said.

This compares to just 23 licenced suppliers in the energy retail market in September 2022.

DESNZ said that a more prescriptive approach is likely to be needed to begin with and is proposing to introduce regulation in a phased approach over three stages, with Ofgem able to enforce standards from 2025 through the use of fines and compensation for customers.

The regulation will give homes and businesses supplied by heat networks similar consumer protections to those enjoyed by traditional gas and electricity customers.

This includes fairer prices backed up by regular clear bills, consistent standards for quality of service and supply of heat.

Government also used the consultation to highlight the lack of use of repayment plans for customers struggling with their bills as an area of concern that needs urgent attention by the industry.

Consumer champions who have long-awaited the introduction of regulation to the heat network sector have welcomed the government’s consultation.

Stephen Knight, director of the Heat Trust, a voluntary standards scheme already in place in the sector, said customer experiences must improve if consumers are to gain confidence in heat networks.

“Whilst many heat network customers get a reliable and value-for-money heating system, sadly, too many do not. Too often customers experience high prices, unreliable systems, and poor customer service,” he said.

Tom Woodward, association secretary at the UK District Energy Association, said: “Whilst we know that many customers connected to heat networks have received a good quality service at a fair price, we welcome this consultation on behalf of our 160 members as the next step on the journey to the introduction of sector wide regulation, which will support those many customers who have not received this fair deal and quality of service they should expect from their heat network.”

The government is also planning to consult on technical standards and zoning over the coming months to help facilitate the growth of the heat network sector.

Caroline Bragg, interim chief executive of the Association for Decentralised Energy, said: “A low carbon, resilient and affordable energy future hinges on our collective commitment to clearing the barriers that stand in the way of widespread heat network adoption and rapidly scaling up deployment across the UK – to enable that, what we need to see next is regulation and zoning coming together to propel the exponential growth of heat networks.”