Heat networks must be regulated, says CMA

Heat networks should be regulated by Ofgem, the Competition and Markets Authority (CMA) has ruled.

The competition watchdog’s market study of heat networks, published today (23 July), concludes that customers of heat networks have less consumer protection than those using other energy services due to the unregulated nature of the sector.

The approximately 14,000 heat networks in the UK provide 2 per cent of total heat demand for UK buildings, a proportion that is expected to increase in line with efforts to cut carbon emissions.

The Committee on Climate Change has estimated that around 18 per cent of UK heat must come from district networks by 2050 in order to meet the statutory targets to reduce emissions by that date to 80 per cent of 1990 levels.

The CMA found that many heat networks offer an efficient supply of heat and hot water at prices that are the same or lower than those paid by people on gas or electricity, as well as “comparable” levels of service.

However, according to the CMA, a number of customers of privately operated networks are getting poorer deals, although some developers keep prices low to avoid causing harm to their reputation that could in turn affect the sales of future schemes.

The CMA concludes that the risk of a poor deal from a network operator is exacerbated by the essential nature of heat services. It says heat network customers cannot switch to another energy provider or benefit from the government’s move to cap household electricity and gas prices.

The report recommends:

• Giving heat network customers the same level of consumer protection as gas and electricity customers
• Accrediting heat networks to ensure they meet a codified set of technical standards.

Ofgem would be “well placed” to extend its remit to regulating heat networks as well as designing the new framework of rules for the sector, the report concludes.

Dermot Nolan, chief executive of Ofgem, welcomed the report’s conclusions. He said: “Heat network customers should get the same level of protection as customers in the gas and electricity sectors.”

The CMA’s final report follows its publication of interim findings in May and concludes that there is no need for an additional investigation.

Tim Rotheray, director of the Association for Decentralised Energy, said: “This recognises 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.”

But he said that the regulatory framework for heat networks should ensure that investors’ risk is minimised.

Alex Neill, Which? managing director of home products and services, said: “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.

“With more and more people getting their energy through heat networks, it is good to see action being taken to better protect consumers.”

Citizens Advice described the CMA’s announcement as “another step towards meaningful regulation”.

Gillian Guy, chief executive at Citizens Advice, said:“While many heat networks work well and provide good value for money, too many people suffer with high bills, poor customer service and no clear way to resolve complaints.

“The number of heat networks is expected to grow significantly in the coming years, making the need for a regulatory regime that is fit for purpose even more important. Transparency over billing, protection from expensive bills and the same level of protections people enjoy for other energy services are essential to achieving this.”