Ofgem has warned the Scottish Government against the perils of pricing for heat networks, which could lead to "poor outcomes" for customers.
In its response to a Holyrood consultation on heat and energy efficiency strategies, along with the regulation of district heating, the regulator warns customers may be "locked in to long-term contracts", with no ability to switch and not enough information to understand their bills.
"Principles-based regulation would likely make it easier to read across arrangements from electricity and gas, which may help meet customer expectations"
It also claims customers risk being charged too much, because there are "no formalised regulations on charging".
Instead, the regulator suggests that customers connected to heat networks be "charged no more than if they were using natural gas for heating".
The consultation response also recommends giving local authorities a role in coordinating connections for heat networks.
"Principles-based regulation would likely make it easier to read across arrangements from electricity and gas, which may help meet customer expectations," the response states.
"A regulatory backstop might also be considered to address systematic failures, with special administration for insolvency."
The response also notes the "well documented" difficulties in securing investment for heat networks and a baseload of customers.
"District heating projects currently have a higher risk profile than those across gas, electricity and water," it notes.