CMA calls for regulation of heat networks
The Competition and Markets Authority (CMA) has called for regulation of the heat network industry and says that Ofgem is best placed to be the regulator.
23rd July 2018 by Networks
The CMA has today (23 July) published the final findings of its seven-month study into this industry, which set out to establish whether heat network customers are getting the right level of protection.
Heat networks provide homes with heat and hot water from a central source via insulated pipes, but unlike other energy services are currently not regulated. As a result, heat network customers in general have less consumer protection if things go wrong.
The CMA found many heat networks offer prices that are the same or lower than those paid by people on gas or electricity, and customers receive comparable levels of service.
However, a number of those on privately operated networks are getting poorer deals in terms of price and service quality, and there is a risk this problem could grow.
There are currently about 450,000 customers of these services, and that number is expected to grow significantly as investment in energy efficient technology increases.
The CMA is therefore recommending that the regulator once it is established:
- Introduces consumer protection for all heat network customers so they get the same level of protection as customers in the gas and electricity sectors
- Addresses low levels of transparency so customers know they are on a heat network and there are clear agreements or contracts between customers and heat network operators
- Makes sure customers are aware of what they are paying as this is often unclear
- Protects customers from poorly designed, built and operated heat networks by preventing developers from using cheaper options to meet planning regulations that end up being paid for by the customer over the longer-term
CMA chief executive Andrea Coscelli said: “With 14,000 heat networks supplying 450,000 people with heating across the UK, they can be an efficient and environmentally-friendly way for people to heat their homes.
“But there are problems with how some operate, especially for those in private housing. People must benefit from the same level of protection as those using gas or electricity, and not be penalised either by paying too much or receiving a poor-quality service.
“There is currently no regulator for this part of the energy sector – we think that is one of the key problems to be addressed and we recommend Ofgem is given this role.”
Dermot Nolan, chief executive of Ofgem, said: “Our principal aim is to protect the interests of current and future energy consumers. We welcome the CMA’s Market Study on heat networks and 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.”
Ahead of these regulatory changes being introduced, the CMA has also today written an open letter to the industry, reminding energy suppliers of their obligations under relevant consumer and competition law. It has also published advice for existing or prospective heat networks customers.
The Association for Decentralised Energy (ADE) director Dr Tim Rotheray said: “The CMA’s recommendation for regulation of the industry, with Ofgem as the regulator, is welcome. The Association for Decentralised Energy, together with industry, has already called for regulation and shared this view with the CMA.
“We also welcome that the CMA has recognised the real customer benefits that heat networks can deliver, providing heat at the same or lower cost than other forms of heat.”
Dr Rotheray said industry has a track-record in proactively working to drive up standards for heat network customers – establishing the customer protection scheme Heat Trust and publishing a Code of Practice to set out minimum standards – in addition to making the call for regulation.
“The CMA has acknowledged heat networks can deliver real customer benefit and recognised that industry is already taking action to ensure all customers on heat networks receive these benefits. This is recognition 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,” he added.
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