CMA considers regulation for heat networks

The CMA's initial findings published on 10^th May 2018, found that, for many customers, heat networks offer prices which are the same or lower than people on a gas or electricity tariff and have comparable levels of customer service. However, it also found that some customers, mainly those living in privately owned or rented properties, pay more for their heat through a heat network and, across the board, heat network customers are not getting the same levels of protection that gas and electricity customers receive.

Areas of concern

The study found three main areas of concern:

• Design and build – some property developers may try to cut the upfront costs of installing a heat network, resulting in higher ongoing operating costs, usually paid for by customers. Heat networks may also be installed where they are the best way to meet planning requirements, rather than the best solution for customers;
• Monopoly of supply – because customers often have no alternative sources of heat and may be locked into long-term contracts, they cannot hold suppliers to account on price or quality; and
• Low transparency – before moving in to a property, people often do not know that their energy will be supplied by a heat network and once people are living in the property, customer bills often fail to set out key information.

CMA recommendations

As the proportion of UK households served by district heating is projected to grow to 20% by 2030 and to address the above issues, the CMA’s provisional view is that the sector should be regulated. The CMA has, therefore, made the following recommendations:

• Consumer Protection - consumer protections to be put in place for all heat network customers that provide benefits such as complaints handling, access to an ombudsman and support for vulnerable customers;
• Network Design & Build - steps to be implemented that improve the design and build of networks;
• Price and Quality - all suppliers should adhere to mandatory rules and criteria around price and quality in long-term contracts; and
• Greater Transparency - measures to be introduced to improve transparency including better information on networks, provision of heat supply agreements or contracts and clearer and more detailed bills.

Next steps

The CMA is consulting on the above recommendations until 31 May 2018 and will publish a final report in the summer. Some of its recommendations will require primary legislation to be enacted which will take some time. The CMA is working closely with the UK government as well as the Scottish and Welsh governments to develop its recommendations.

Conclusion

The initial reaction from industry to the above findings has been very positive with most welcoming the introduction of a regulatory framework for heat networks. However, it will be key that the form of such regulation must consider how to reduce investment risk for third party investors in heat networks whilst at the same time ensuring a customer protection regime that offers the same protections afforded to customers in the electricity and gas markets. With the expected opening of the Heat Networks Investment Project (HNIP) in Autumn 2018, the above findings come at a very important time for the UK's district heating sector.