Is regulation on the way for heat networks?

Heat networks could soon be regulated after a Competition and Markets Authority (CMA) investigation found that many people are facing higher prices and have less protection over the service they receive.

Heat networks, also known as district heating, are a way of heating a block of flats or even a neighbourhood using a single central boiler, with pipes leading into each home to supply heating and hot water. 

According to the CMA, there are 14,000 such networks in the UK, providing heating to about 450,000 people. 

However, currently there's no regulator overseeing heat networks, so customers don't have the rights and protections that standard gas and electricity customers receive.

Plus, if you're supplied through a heat network, you can't compare and switch supplier if you're unhappy with the service or price. And with providers usually contracted to supply a site for 25 years or more, there's little incentive to offer a deal that's right for customers. 

What are the CMA's concerns?

As heat networks are essentially natural monopolies - in most cases, customers have no option to switch away if unhappy - there's a concern providers have very little incentive to offer more competitive prices or levels of service.

While the initial CMA findings note that, on average, heat networks are currently offering prices around the same level or lower than those of a standard gas and electricity supplier, those living in privately owned or rented homes are paying more.

On average, those on privately operated schemes paid 7.8p a kilowatt hour (kWh), compared with 4.9p/kWh across all heat networks, while the annual heat charge was about £30/year higher. 

The key concern, however, is that across the board, heat network customers have few consumer protections.

The CMA found three main areas of concern: 

  • Design and build - the CMA says there's a concern that property developers may have the incentive to go for a network with cheaper upfront costs and higher longer-term operating and maintenance costs. Cheaper systems tend to be less efficient, leaving consumers with higher prices as they usually foot the bill for operating costs.

    It also said heat networks may be installed where they're the best way to meet planning requirements, rather than because they're the best option for consumers.

  • Monopoly of supply - as there are no alternatives for customers for their supply and they're usually locked in to long-term contracts, they cannot hold suppliers to account on price or quality. 

  • Low transparency - before moving in to a property, people are often not told their heating will be supplied by a heat network, and once they're in, bills are confusing and fail to set out important information such as inflation-linked price increases and system maintenance charges. 

What's the CMA proposing? 

To address these issues, the main remedy in the CMA's provisional findings is to introduce regulation to the market.

At the moment, no regulator has responsibility for heat networks - they're outside Ofgem's remit and there's only a smattering of other regulations covering what information is given on bills, and on the design and build of the system itself.

There is also a voluntary scheme - the Heat Trust Scheme - which promises certain consumer protections, but only a small number of providers are signed up and pricing and contract duration are outside its scope.

According to the CMA, regulating the heat networks will mean:

  • Consumer protections cover all customers, providing complaints handling, access to an independent ombudsman and support for vulnerable customers. 
  • Improvements to the design and build of heat networks. 
  • All suppliers being required to meet mandatory rules and criteria around price and the quality of long-term contracts. 
  • Improved transparency, from better information on the networks through to information on heat networks before people move in to a home supplied by one, and clearer, more detailed bills.

What are the issues?

A number of concerns have been raised about heat networks in recent years, with Citizens Advice, Fuel Poverty Action and Which? all pointing out failures in some of these schemes. 

In 2015, Which? raised concerns that those with district heating can't switch supplier and have no right to redress for customer service failings. Other concerns included high prices, mis-selling and poor service and complaints handling. 

In 2016, Citizens Advice called for price regulation of heat networks, explaining that there was little information available to assess if they're good value compared to traditional gas and electricity supply.

Citizens Advice also pointed out that there seemed to be huge variations in the way in which customers are billed and that there's no route to redress, if there are problems. 

Fuel Poverty Action has also covered the issue, raising the point that some leaseholders who have bought homes with a heat network have been asked for substantial sums to cover replacements or improvements for the heating systems - sometimes upwards of £20,000.

The campaign group also published a detailed report last year on two schemes in London,  highlighting the lack of consultation and information before the heat network was introduced, unreliable supply and repair service, unaffordable and inaccurate bills, and poor customer service. 

Plus, we've heard of a number of issues from users. Darren emailed us on billing, price and contract length: "We all seem to be paying more for service charges than actual usage, and that's with a service that has not been very reliable from the start.

"Tried to complain to E.on, only to be faced with lengthy queues for their contact centre.

"Residents of E.on-supplied homes are locked in on contracts for 75 years, so E.on have a monopoly over us and are currently unregulated."

Others have complained about unexpected increases in charges:

I have a heat network, what can I do? 

While regulation may be on its way, it's not arriving any time time soon. So, if you're having problems now, there are some things you can try: 

  • Complain. Your first move is to talk to the supplier of the heat network, or to your landlord if you rent. You can raise the issue and see if they'll sort it out for you, and if not, go through the supplier's complaints procedure to try to force it to act. 

  • Residents' association. If your building or community has a residents' association, it may be worth reporting the issue to it. Such a group may have a contact with the supplier, and if a number of residents have the same issue, it may help spur the provider to help. 

  • The Heat Trust. Some heat network providers are part of the Heat Trust, a voluntary scheme that aims to set minimum standards in quality and customer service for heat networks. It also provides an independent dispute resolution service, which may be able to help if your supplier is part of the scheme and has been unable to resolve your complaint. You can check to see if your supplier is signed up on its site. 

Heat networks only supply gas or similar for heating and hot water, so you'll likely still be able to switch your electricity supplier. 

Though it won't bring your heating bills down, you could still cut costs by doing an electricity-only Cheap Energy Club comparison and switching supplier.