Reports of bills rising by up to 700% on some schemes

More than half a million households on communal and district heating networks will be locked out of Ofgem’s price cap (set to be announced tomorrow), leaving them exposed to huge and unrestricted price rises.

As many homes around the country brace for a jump in bills when Ofgem announces April's price cap increase, 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 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 have to buy gas on the commercial rather than domestic markets.

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.

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. 

Commercial gas saw a 1000% price increase last year, rising from 1.5p/kWh to 15p per unit before Christmas. The price is currently hovering between 6p and 7p per unit (c.175-205p/Thm).

Consumers and landlords operating heat networks are already reporting examples of price rises of up to 700% - the equivalent of a price of milk rising to £3.85.

Heat Trust is calling for government intervention this winter to include:

• Ensuring heat network operators and consumers are able to access any government support aimed at helping families forced to choose between eating and heating
• 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 this winter.”

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 until later in 2022 or 2023, and Heat Trust wants to see this scheme brought forward and expanded to reduce 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.

“Gas price increases such as those experienced at the end of 2021 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 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.”

Reports of bills rising by up to 700% on some schemes

A consumer protection body has warned that more than half a million households on communal and district heating networks should not be locked out of any government support to protect people against spiralling gas prices.

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, which is driving up heating bills. 

The government’s price cap does not currently apply to the heat network market where operators have to buy gas on the commercial rather than domestic markets.  Commercial gas prices are currently around 4 times pre-crisis levels.

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. 

Commercial gas saw a 1000% price increase last year, rising from 1.5p per unit to 15p per unit before Christmas. The price is currently hovering between 6p and 7p per unit.

Consumers and landlords operating heat networks are already reporting examples of price rises of up to 700% - the equivalent of a price of milk rising to £3.85.

Heat Trust is calling for urgent government intervention by:

• Allowing heat network operators to purchase gas at the capped domestic tariff rates and pass on the saving to consumers
• Ensuring heat network operators and consumers are able to access any government support aimed at helping families forced to choose between eating and heating
• Bringing forward its plans to regulate the heat network market via Ofgem which were confirmed in December last year

Stephen Knight, Director of Heat Trust, said: “The government is fully 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 this winter."

Heat Trust is also calling for changes to the Landlord and Tenant Act rules which currently makes 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 would further protect consumers from market volatility.

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

“Gas price increases such as those experienced at the end of 2021 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 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.”

Welcome to our Winter Heat Trust update for 2021. It covers updates from both Heat Trust and the wider heat network and customer protection fields. We hope that you find it informative and useful, and welcome any feedback. 

Read Winter Update 2021/22

 

Responding to the government’s announcement that it intends to push ahead with regulation of heat networks, Stephen Knight, the Director of Heat Trust, the national consumer protection scheme for heat networks, said:

“We welcome the government’s commitment to regulating heat networks and the news that Ofgem will have new powers to oversee the sector.

“In the absence of regulation, a growing number of consumers are being left unprotected. As the reliance of the country on heat networks grows, so will the scrutiny of their performance and service standards. Legislation to protect consumers is essential and overdue. 

“To avoid any further delays, we now need government to commit to including the legislation to enact these changes in May’s Queen’s Speech.

“We welcome the government’s continued support for the Heat Trust scheme and its recognition of our ‘important role in preparing the industry as we move towards regulating’. We are already working closely with Ofgem to help them develop the regulatory framework and will continue this work in 2022. 

“Heat network operators, from energy companies to social landlords and councils, now have an opportunity to prepare for and help shape the future regulation by registering their networks with Heat Trust. 

“We will continue to work closely with operators, government and Ofgem to ensure a seamless transition to regulation and make sure consumers remain central to that journey.”

Heat Trust, the independent national consumer protection scheme for heat networks, is working closely with Ofgem, which Government will shortly appoint as heat networks regulator.  As part of this partnership Heat Trust has taken on a senior officer from Ofgem on a 12-month secondment.  The secondment is grant funded by the Department for Business, Energy & Industrial Strategy (BEIS).

Richard Bellingham, who has served with Ofgem for more than 11 years and is Head of Compliance, responsible for understanding retail supplier activity and how it impacts consumer outcomes, joined Heat Trust as Head of Compliance and Audit on 1^st September, initially 1-day-a-week and became full-time with Heat Trust at the start of December.

The Government plans to introduce statutory regulation of heat networks in the next few years, including the introduction of consumer protections, pricing rules, minimum technical standards, and requirements for heat networks to decarbonise.

In the absence of such regulation, Heat Trust was created in 2015 to provide independent consumer protection in the sector.  It currently sets minimum standards and provides access to ombudsman dispute resolution for over 61,000 heat network customers across the UK, where the provider is registered with the scheme.

Stephen Knight, Director of Heat Trust, said: “Our mission is about protecting heat network customers and we have long supported regulation of the sector.  We are determined to work with Ofgem to make the transition to statutory regulation a success and as seamless for customers as possible.  We are therefore delighted to have Richard join our team and help us to grow in the short term, learn about the sector and to help us prepare heat suppliers for regulation.”

Cathryn Scott, Ofgem’s Director of Enforcement & Emerging Issues, said: “As Ofgem supports BEIS in developing formal regulation of the Heat Network sector, we are pleased to be working closely with Heat Trust. Gaining knowledge of the sector and the customers through this secondment will enable Ofgem to develop regulations that protect consumers whilst supporting growth of the Heat Network sector.”