In response to the unprecedented increase in wholesale gas prices, and the knock-on impact this has had on the cost of heating for those with communal or district heating systems, a new report reveals the current levels of customer support provided by communal and district heat network operators and highlights best practice for the sector.

Heat Trust, the national consumer protection scheme for heat networks, undertook a compliance project to check that its registered heat suppliers were providing adequate support to customers at risk of financial difficulty.

The report found that over 70% of heat networks surveyed had compliant procedures for identifying customers in need of extra support when regulation comes in [1].

Another positive finding was that almost four-fifths of heat networks surveyed have easily accessible support in place for customers, greatly reducing the likelihood of non-compliance. [2]

The report also highlights suggested best practice, such as heat networks forming partnerships with debt support charities, making it a useful guide for the whole heat network industry.

The aim is that all heat network operators will review their current practices and processes in this area and, where necessary, make changes and improvements in advance of winter to provide the best possible support to their customers.

The report considers best practice under three main themes and provides guidance as to how heat suppliers should have:

1. Systems to identify customers in need of additional support.
2. Support mechanisms in place that are clearly communicated to customers, easily accessible, and tailored to their needs.
3. Processes in place to review, monitor and improve their provision of customer service and support based on customer feedback.

As the industry awaits the passage of the Energy Bill, being debated in the House of Lords, Heat Trust believe it is likely that heat network operators will need well developed processes aligned with these themes to meet the requirements of the formal regulatory framework that Ofgem will operate in the future.

Commenting, Richard Bellingham, Head of Compliance and Audit at Heat Trust, said: “It was gratifying to see so many of the heat suppliers registered with Heat Trust are compliant with the scheme rules in this area and, in some cases, go beyond the requirements and demonstrate strong support for customers that are struggling financially.

“It was also greatly insightful to see the areas where heat networks are most at risk of non-compliance, and this will help us shape the support we provide.”

Stephen Knight, Director of Heat Trust, added: “Communal and district heating customers aren’t protected by a price cap and so the recent massive increases in wholesale gas prices are often resulting is much larger price rises than domestic gas customers are experiencing. In this context, it is critical that operators do everything they can to support customers in financial difficulty.

Whilst we are delighted that the Energy Bill now before Parliament includes price protections for customers in the future, these protections will not help customers this winter or next. In the meantime, we hope that this report will help network operators put appropriate support in place for those struggling with their bills.

We also encourage more operators to register their heat networks with Heat Trust to provide their customers with protections and to give them a head start with the upcoming regulations.  It’s the best way they can become regulation-ready!”

Read the full report here.

[1] 71% of heat networks surveyed have identification processes that are at low risk of non-compliance (green or gold, Outcome 1). 'Supporting customers in financial difficulty Compliance assessment and best practice', Heat Trust, July 2022, p. 9.

[2] 79% of heat networks surveyed have readily accessible support and communication that puts them at low, or very low, risk of non-compliance (green or gold, Outcome 2), p. 15.

The Government’s new Energy Bill, which is the first new energy sector legislation for nearly 10 years, includes powers to regulate district and communal heat networks to improve customer protection and will be debated for the first time in the House of Lords on 19^th July.

Heat Trust, the national consumer protection scheme for heat networks, has long advocated statutory regulation of the sector, and so welcomes this important milestone.

Regulation is needed to address existing problems with the sector as well as to ensure customers are protected as this important sector grows to meet the Climate Change Committee’s (CCC) objective of 18 per cent of national heat demand being met via heat networks by 2050, in line with the UK’s net-zero targets.

In the absence of regulation, Heat Trust reports that there are too many examples of poorly executed heat networks that are unreliable (leading to frequent interruptions to supply) and extremely inefficient, which in the light of currently inflated gas costs, can result in very expensive heat being delivered to consumers.

Heat Trust has been working closely with BEIS and Ofgem to help shape the regulatory framework and expects the consumer protection regulations to closely match its existing Scheme Rules, which are themselves modelled on consumer protections in the gas and electricity sector.

The Government (BEIS) has said: “We want the Heat Trust voluntary scheme to have an important role in preparing the industry as we move towards regulating the market, and we strongly encourage heat networks to register with the scheme now to prepare for regulation.”

Heat Trust also welcomes that statutory regulation will go beyond areas covered by Heat Trust Scheme Rules, to include matters such as heat pricing and technical standards, which will further protect consumers.

The Bill includes the power to set a domestic heat network price cap, although the Government says that Ofgem will not initially set a price cap, but instead intervene where it considers heat prices are “disproportionate”. High heat prices are often driven by high inefficiencies and heat losses due to poorly performing networks and so regulation of prices and of technical standards are closely linked.

The regulation of technical standards should deliver improved efficiency of heat networks, to keep heat costs down for consumers, as well as improved reliability, to deliver a better overall consumer experience.

The details of regulations will be set out in future secondary legislation, which will be subject to consultation, and Heat Trust will respond to these consultations with detailed comments when they arise.

In the meantime, Heat Trust is committed to working with industry and government to ensure a smooth transition to regulation and to making sure consumers remain central to that journey.

Ahead of the second reading of the Energy Bill on 19^th July, Stephen Knight, Director of Heat Trust, said:

“Heat Trust supports the government’s commitment to regulating heat networks, which will bring greater consumer protection to the sector. This long-awaited Energy Bill is the first step in this process.

“Sadly, in the absence of such regulation, not all heat network customers are currently receiving a good service, with too frequent supply interruptions, and in recent months many have seen enormous, uncapped price rises.

“At Heat Trust, we work with operators who are committed to providing a good service and hold them to meeting minimum service standards, but sadly too few operators are registered with our scheme.  Those that are registered will be uniquely prepared for regulations when they come into force and I encourage others to contact us about registration so that more can become regulation-ready over the coming months.

“We are looking forward to helping government and Ofgem to deliver a set of regulations that can deliver real improvements for all heat network customers. In the meantime, we will continue to work with district and communal heat network operators and the government to prepare the sector for regulation.”

Heat Network regulation must be included in Queens Speech

Heat Trust is calling on the government to announce urgent new financial support for half a million households that currently have no protection against energy price rises and are experiencing much more severe increases than regular domestic gas customers.

Heat Trust, the national consumer protection scheme for heat networks, which protects households on communal and district heating networks, is warning that without government help, hundreds of thousands of people in the UK could be left unable to afford to heat their homes.

Heat Trust’s Director, Stephen Knight, has recently met with Business Secretary Kwasi Kwarteng and Energy Minister Lord Callanan to explain the dire position of communal and district heating customers: “Many communal heating customers are experiencing price increases of 400% - likely to take their heating bills next winter from £50 a month to £250 a month.

“Communal and district heating customers aren’t protected by the Ofgem price cap and operators buy gas at commercial prices, which have seen extraordinary increases in the past year. Without government support, customers simply won’t be able to afford to pay their bills.

“Sadly, ministers have so far offered little comfort that they are prepared to offer help to these customers, many of whom are flat tenants of councils and housing associations on low incomes.”

Heat Trust is urging the government ahead of the Queen’s Speech to fulfil its promise to regulate the heat network market and confirm Ofgem’s new powers to oversee the sector.

Stephen Knight said: “The government has been promising to regulate heat networks to bring in consumer protections and price regulation for some years and it is time this promise was finally fulfilled.  Sadly, such regulation will take several years to take effect and in the meantime  hundreds of thousands of people will face limitless price rises and have no access the consumer protections in place for other energy customers.”

Heat Trust says some residents and landlords operating heat networks are reporting potential rises of up to 700% - the equivalent of a pint of milk rising from 60p to £4.80.

Stephen Knight, Heat Trust’s Director, said; “Government gave us reassurance last year that regulation of heat networks would be going ahead and we are urging them to ensure this commitment is followed through in the Queen’s Speech.

“Regulation is absolutely vital for the 500,000 households which are currently overlooked, many of which include older people, social tenants, people with health conditions and other groups which are even more vulnerable to the harsh impacts of the cost-of-living crisis. We cannot let these households slip through the net of support and financial protection.”

Heat Trust is the independent national consumer protection scheme for heat networks and was set up to protect customers who receive their heating via such systems.

Heat networks are seen as a major part of the UK’s decarbonisation plans, and can deliver low-carbon, low-cost energy to homes. However, without the regulation the government has previously promised, consumers are not protected in the same ways as other energy markets.

Heat Trust is calling for government intervention to include:

• Ensuring heat network operators and their consumers receive government support to ensure that their bills are capped in the same way as those of domestic gas customers.
• Bringing forward its plans to regulate the heat network market via Ofgem.
• Bringing forward plans to help heat networks improve their efficiency.

Knight added; “Government has recognised the huge potential benefits of heat networks and how they can form a key part of its decarbonisation plans.  

“However, without intervention, hundreds of thousands of families are facing financial ruin and worse. We trust that the government will see the bigger picture and introduce the infrastructure needed to make heat networks effective for people and the planet."

Calls for heat network protection as government’s backstop fails to protect these customers

As approximately 22 million customers brace themselves for Ofgem's price cap rise today, more than half a million households on communal and district heating networks remain locked out of any protection – leaving them exposed to even bigger, unrestricted price rises.

Consumer protection body Heat Trust is warning that urgent government action is needed to support those living on heating systems that are not protected by the price cap.

Heat Trust, the independent national consumer protection scheme for heat networks, says those living on communal or district heating systems are set to be amongst the worst affected by the soaring cost of gas – with residents facing the prospect of being unable to afford to heat their homes.

The government’s price cap does not currently apply to the heat network market, where operators buy gas on the commercial rather than the regulated domestic gas market.

The Director of Heat Trust, Stephen Knight, has written to Kwasi Kwarteng, Secretary of State at BEIS, to request that 500,000 households are not overlooked as the government looks to ease the financial pressure on families and has been promised a meeting with the Secretary of State, alongside others from the sector, later this month.

Heat networks are seen as a major part of the UK’s decarbonisation plans, and can deliver low-carbon, low-cost energy to homes. However, as the market is currently unregulated, consumers are not protected in the same ways as other energy markets. 

The wholesale gas price, which until last autumn had averaged around 1.5p/kWh for decades, peaked at 27p/kWh at the start of March and has averaged around 10p/kWh in recent weeks. This means that when heating operators renew their commercial gas contracts, they are seeing massive increases, which are often passed straight on to consumers.

Consumers and landlords operating heat networks are already reporting examples of price rises of up to 700% - the equivalent of the price of a pint of milk rising from 60p to £4.80.

Heat Trust is calling for government intervention to include:

• Ensuring heat network operators and their consumers receive government support to ensure that their bills rise no faster than those of domestic gas customers.
• Bringing forward its plans to regulate the heat network market via Ofgem which were confirmed in December last year,
• Bringing forward plans to help heat networks improve their efficiency to reduce heat wastage.

Stephen Knight, Director of Heat Trust, said: “The government is committed to making heat networks a key part of its energy policy, and must not leave families living on these schemes behind.

“Heat networks have the potential to offer low-cost, low-carbon heat, but without intervention, hundreds of thousands of families are facing horrendous and unaffordable heating bills.”

Heat network operators are keenly awaiting further news of the government’s Heat Network Efficiency Scheme (HNES) aimed at improving the performance of communal heating projects.

The HNES Demonstrator £4.175m grant scheme has already supported a number of communal networks to improve their performance, but the full scheme is not currently due to be launched for another 12-months (spring 2023), and Heat Trust wants to see this scheme brought forward and expanded to cut bills by reducing heat wastage.

Heat Trust is also calling for changes to the Landlord and Tenant Act rules which currently make it difficult for landlords to buy gas more than 12 months in advance, making them vulnerable to price fluctuations. If they could buy gas for longer periods of time, it might protect consumers from market volatility.

Knight added: “Our mission is to protect heat network customers.

“Commercial gas price increases of this magnitude are simply not sustainable for heat network customers. They are driving up household bills in unprecedented ways – many people will have to choose between heat and food.

“Heat networks are commonly used in blocks of flats and are becoming increasingly common with social landlords, meaning the most vulnerable people in society are the ones most affected by the current crisis. We can’t let that happen.”

ENDS

Heat Trust is the national consumer protection scheme and customer champion for those living and working on heat networks.  To fund our activity, we levy two fees on Registered Participants: the Scheme Annual Fee and the Site Registration Fee.  As a not-for-profit organisation, both these fees are set based on an assessment of our fee income and cost of our ongoing operations for the forthcoming year.

We are mindful of the importance our operations have for ensuring customers benefit from heat networks that are fit for the future.  We are also aware that our operations impose a cost on Registered Participants, a cost which is ultimately borne by those same customers.  We are therefore committed to ensuring we continue to provide high levels of customer assurance whilst also delivering that assurance at the lowest reasonable cost to consumers.

In the light of these factors, our Board has now agreed a budget for the forthcoming year and we are in a position to confirm our fees for the twelve-months from 1^st April 2022.

Scheme Annual Fee

From 1^st April 2022 the Scheme Annual Fee will reduce by 14.3% from £4.61 to £3.95 per connection, exclusive of VAT.

Site Registration Fee 

The site Registration Fee for all new sites registered with us will remain unchanged from 1^st April 2022 at £100.00 per site, exclusive of VAT.

Despite this reduction, made possible by the continued growth in membership of the scheme, we have ambitious plans to increase in our activity for the coming year, including continued engagement with industry, Ofgem and BEIS to help shape the future regulatory framework.

2022/23 will be a very important year for both the wider heat network sector and the customers who rely on it.  We expect to see legislation introduced to implement regulation of the sector, set against the backdrop of continuing rising energy costs having a significant impact on consumers.  We remain committed to increasing our impact for customers, raising standards, and ensuring a minimum level of protection.

If you have any questions regarding these changes and how they may impact you or your organisation, please do not hesitate to contact us.