The Competition and Markets Authority has said heat networks must be regulated following a seven month study into whether customers are getting the right level of protection.
Its analysis concluded that those supplied under many privately-run heat networks installed in blocks of flats or housing developments are getting poorer deals than those on standard gas and electricity tariffs, both in terms of price and service.
Currently, there is no regulator for this kind of supply, and the CMA is recommending that Ofgem is given the role - a move that would require new primary legislation to be introduced by the Government.
Back in May, the the CMA announced a similar view in its provisional findings from the study into heat networks - today's announcements confirms its final recommendations.
Currently, there are 450,000 homes supplied by 14,000 individual heat networks. These networks work by providing heat and hot water to individual homes from a central boiler through insulated pipes - rather than each home having its own boiler as is the case for those on a standard gas and electricity supply.
If you're on a heat network, you can't change your gas provider to cut costs, though you can still switch your electricity – see our Cheap Energy Club to do a comparison and see if you can save.
What were the CMA's findings?
The CMA undertook detailed analysis of heat networks and found that while many customers are receiving an efficient supply of heat and hot water at a similar price to those on a standard gas and electricity supply, with comparable service standards, some customers - mainly those on privately-run schemes - are experiencing much poorer outcomes.
On prices, it found that some networks offer poor value for money for heat and hot water, with unit prices and average bills varying massively between schemes. According to the CMA, higher prices were largely found at privately-operated schemes.
However, as prices vary considerably between schemes, it's tricky to get an accurate average for how much heat network customers pay, making it difficult to compare properly with standard gas and electricity prices.
On service, the CMA says the main concern is customer access to information about their heating, the frequency and content of bills, and consumer redress. The authority also found there's issues with accountability when problems do arise.
What does the CMA's recommend?
The CMA concluded that heat networks should be regulated by a public-sector body with powers to set future regulation, monitor compliance and enforce action against network operators that don't comply with any regulation.
Once established, the CMA recommends that the regulator should:
- Introduce consumer protection for all heat network customers so they get the same level of protection as customers on a standard gas and electricity supply.
- Tackle low levels of transparency so customers know they're being supplied under a heat network before moving in, and make sure there are clear agreements or contracts between customers and network operators.
- Make sure customers are aware what they're are paying - according to the CMA this is often unclear.
- Protect customers from poorly designed, built and operated networks by stopping developers using the cheapest options that meet planning regulations, but which end up costing customers more in the long run due to higher operation and maintenance costs.
The CMA also recommends that that the Department for Business, Energy & Industrial Strategy and Scottish Government should introduce a statutory framework that underpins regulation of all heat networks. This should:
- Be designed to ensure all heat network customers are protected. At a minimum, this protection should be the same as standard gas and electricity customers.
- Include price, quality of service, transparency and minimum technical standards.
- Give formal powers to a sector regulator to introduce regulation in these areas, and to monitor and enforce compliance.
The authority notes in its report that Ofgem - which regulates the standard gas and electricity market - would be well placed to take the role of regulator for heat networks.
I'm supplied by a heat network, how can I complain?
While the CMA has recommended regulation for the those on heat networks, this will take time to come in. In the meantime, the authority has published information on what to do if you have an issue.
It says that if you’re unhappy with the service or cost, first contact your supplier directly. It should provide you with a full breakdown of costs and how your bills are calculated, and there should be a clear complaints handling process (ask your freeholder or managing agent for your supplier details if you don’t have them).
The CMA also recommend you talk to your neighbours to see if they're facing similar problems - as collectively you will have more bargaining power with your supplier and you may be able to go through a Residents or Tenants Association.
You can also contact the Heat Trust - a voluntary scheme which promises certain consumer protection (though only a few providers are actually signed up to it) - for more information.
What does the CMA say?
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 … agree that heat network customers should get the same level of protection as customers in the gas and electricity sectors."