Consumer Protection in the District Heating Market

District and communal heating schemes (also known as heat networks) supply heat and hot water, generated in a central location, to a number of customers. This may take the form of a boiler serving multiple residences within an individual building, such as a tower block, or several buildings connected to a larger network.

Well designed and installed schemes have many benefits including the potential to have lower supply costs, reduced carbon emissions and be adaptable to different heat sources. They can also be powered by renewable resources such as biomass, or capture and use heat that would otherwise be wasted. District heating is therefore seen as having significant potential in both tackling fuel poverty and decarbonizing heat supply.

The UK Committee on Climate Change has estimated that district heating could supply up to 20% of the UK’s total building heat demand by 2050 (UK Parliament Committee on Climate Change, Next steps for UK heat policy, October 2016). Whether these projections are met or not, there is a distinct possibility that the sector will expand, and this expansion could be rapid.

At present, the supply of gas and electricity is regulated by Ofgem, and consumers have a range of statutory protections, including standards of conduct and standards of service for metering and disconnection, provision of a priority services register for vulnerable consumers, legal protection of contracts, right of redress to the energy ombudsman, and provision of information.

However, district heat is not currently regulated, and therefore its consumers are not subject to the same levels of protection. There is evidence that, as a result of this, district heat consumers are vulnerable to detriment. For district heating to play a positive role in eradicating fuel poverty, it must be affordable and consumers must have access to the support that they need.

The CIBSE/ADE Heat Networks: Code of Practice is a non-regulatory piece of guidance that has been developed in order to provide minimum standards and best practice in heat network development.

While the UK Government has recognized that consumer protections for district heating consumers should be “at least as good” as those in place for other forms of heating, it has also stated that it does not wish to bring in regulation to ensure that this is put in place, instead favouring a voluntary scheme (UK Government, The Future of Heating: Meeting the Challenge, 2013). However, recent tragic events in association with the Grenfell Tower fire are forcing the government to review its approach to light-touch regulation.

Work produced by Which? found that with the small number of heat networks currently in use in the UK, an industry regulator would be too expensive for either the taxpayer or consumer (Energyworld Magazine, July/August 2017).

In order to address fuel poverty, consumers – often those in vulnerable situations – need to be able to access services, such as information on how to effectively use their heating system and support to manage debt. A robust and easy to understand journey, with appropriate protections throughout, is needed to support individual consumers.

However, the implementation of standards is as important as their existence. Any lack or failure of consumer services and protections can exacerbate fuel poverty. The impacts on consumers can be immediate, such as when vulnerable consumers receive large bills that leave them in debt, or longer term, if consumers receive poor or insufficient information and advice.

Poor standards of service can also undermine trust in the energy sector in general, and a range of surveys have indicated that levels of trust have been very low for some time. In turn, this can undermine trust in aspects of the energy market, and reduce consumer buy-in, particularly for newer technologies like district heating. Consumers need confidence that measures are being promoted and installed in ways which will meet their needs, and effective support should be part of this process.

What consumer protection currently exists?

The majority of district heat suppliers have introduced some steps to protect their customers and there are numerous examples of good practice. However, research suggests that protection measures are inconsistent across the sector which means there remains a risk to consumers.

The Heat Network (Metering and Billing) Regulations 2021 is a piece of UK legislation derived from the EU Energy Efficiency Directive. Its main purpose is to encourage heat suppliers to increase their uptake of final customer energy metering and more accurate and informative billing methods, bringing communal and district heating more in line with more conventional utilities such as electricity and gas. Implementation of such systems has the potential to make consumers much more aware of what they are being charged, meaning they may be more inclined to use heat more economically, but also empowering them to challenge their heat supplier on the performance of the heating system and to minimise inefficiencies.

Another form of protection for consumers comes from the Heat Trust, a voluntary scheme for heat suppliers launched in November 2015. The Heat Trust sets out a common standard in the quality and level of customer service that heat suppliers should provide. It also provides an independent process with the Energy Ombudsman for settling complaints between customers and their heat supplier.

Whilst the positive achievements of the Heat Trust should be recognised, a survey conducted by Changeworks and the Centre for Sustainable Energy (CSE) found that only 5% of energy suppliers surveyed were members of the scheme, 10% had plans to join but at least 50% had no plans to join the scheme. It may therefore be concluded that there is some way to go before the Heat Trust reaches its full potential.

Earlier this year the Association for Decentralised Energy also launched a Heat Network Task Force which, as part of its work, will look at customer protection. The task force will address the challenges created by heat networks’ natural monopoly, and consider whether there is a role for policy or regulation in building on the existing voluntary frameworks, such as Heat Trust, to ensure customers receive good service and a fair deal.”

So what could be done?

Research by Changeworks and the Centre for Sustainable Energy (CSE) for Citizens Advice Scotland (Different rules for different fuels: Exploring consumer protection in the district heating market) identified 16 key consumer protection measures that could potentially be implemented in order to offer greater protection to district heating customers. The measures include:

• Price controls, price setting criteria, publishing of prices, and schemes being run on a not-for-profit basis.
• Minimum standards of regularity and accuracy for billing, and breakdowns of prices.
• Support for vulnerable consumers and support for consumers in debt.
• Minimum standards for fault handling and compensation for interrupted supply.
• Complaints handling including independent dispute resolution service.
• Technical standards and compensation for interrupted supply.
• Fair contracts clearly setting out joining and leaving rights and contractual terms.

Some of these measures correspond closely to the protections that are in place for gas and electricity consumers however the district heating market does not operate in the same way as the electricity and gas markets and does not offer the same choice to consumers, meaning additional measures may be necessary.

So what are the barriers? According to survey results received by Changeworks and the CSE, it isn’t the suppliers who are putting up barriers to regulation. In fact they, and other stakeholders surveyed, suggested that regulation for many of the basic consumer protections set out above would not have an adverse impact on businesses and that they would support greater consumer protection measures and regulation of the district heating market.

If you’re an operator of a heat network or a local authority or developer wishing to discuss an existing or potential district heating network then we’d love to hear from you.