Government ‘must close the gaps’ in regulation of decarbonisation incentives

The government “must bring the heat networks under regulation” by bringing forward legislation in the energy white paper to extend Ofgem’s remit in this area, Citizens Advice has warned.

In a report released today (12 July) the consumer charity said the government must “close the gaps” in the regulation of decarbonisation incentives such as heat networks in order to protect consumers.

The charity claims that, because heat networks are unregulated, many more people will be at risk from  billing errors, standing charges and a lack of information.

While there is the Heat Trust scheme which does offer protection for customers, it is only a voluntary scheme.

Currently only 2 per cent of households get their heating and hot water through a heat network, a figure rising to an estimated 5 per cent by 2030. By 2050, more than 5 million homes could be heated this way.

“Contacts we receive through our consumer service show that heat network consumers are experiencing varying levels of consumer detriment due to a lack of regulation in the sector”, the report said.

Furthermore, the charity argues that there is “no credible” UK-wide strategy to achieve the government’s decarbonisation targets – including how customers will be protected and where the costs will fall.

The report also warned that the “lack of a credible plan” to decarbonise the way homes and business are heated risks failing customers and undermining public confidence.

“Any undue delays to the decarbonisation of the way we heat our homes and businesses risk making the UK’s climate targets more difficult and expensive to meet”, the report added.

To address these issues, the charity is calling on the government to:

• Establish an independent commission to determine the fairest way to pay for the energy transition, including the shift to low-carbon heat
• Legislate to extend Ofgem’s powers to regulate heat networks and establish an independent consumer advocate for heat networks in the forthcoming energy white paper
• Consult on a strategy to decarbonise heat, which includes plans to improve energy efficiency of existing and new housing stock

Gillian Guy, chief executive of Citizens Advice, said: “The way we heat our homes needs to undergo a major transformation.

“How we manage that process, and fairly distribute the costs, needs the urgent attention of government.

“An independent commission is the only way to make sure the pathway to net zero is assessed in a rigorous, transparent and timely way.

“Consumers must be at the heart of the process, with the right protections built in for them now. The energy white paper is the perfect opportunity to fill the regulation gap for heat networks, and set the standard for future innovations.

“We need to get these decisions right now to prevent the bad practice of today becoming the standard practice of tomorrow.”

In response to the report, an Ofgem spokesperson said: “Our principal aim is to protect the interests of current and future energy consumers.

“Ofgem’s remit is set by government and this does not currently include regulating heat networks however we 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.“

Meanwhile a spokesperson for BEIS said: “Heat networks play a vital role in our efforts to decarbonise heat and work towards net zero emissions by 2050.

“We are committed to ensuring consumers pay a fair price for their energy, and will be consulting on how to better regulate heat networks to protect consumers in due course.”

Last year a Competition and Markets Authority (CMA) investigation found that lack of regulation for heat networks means their customers enjoy less protection than those using other energy services.

In addition a paper issued by BEIS accepted the CMA’s view that there are “good reasons” for Ofgem to take on regulation of district heating.

It says “Ofgem has extensive relevant experience to draw on from regulating the companies which run the gas and electricity networks.

“We and Ofgem recognise that a regulatory framework for heat networks is likely to be distinct from other regulated utility markets to account for the unique characteristics of the heat networks sector and that Ofgem would need to extend their expertise accordingly.”

Furthermore energy minister Claire Perry has written to heat suppliers and operators of heat networks encouraging them to join the voluntary, industry-led Heat Trust consumer protection scheme.