Regulated heat networks are set to play an increasingly important role in UK social housing, private and commercial property and energy sectors.

Heat Networks

Heat Networks (HNs) include both communal heating, which(heats multiple consumers in the same building, and district heating, which heats multiple buildings. The key elements are:

• a single source of heat generation, which is often also a source of electricity generation. For example solar, wind or waste incineration may produce both
• a network of pipes sharing the heat (or coolant), usually as water
• an interface between the network and consumer

 

HNs offer a number of potential ‘wins’ for housing associations, policy makers and consumers:

• ‘heat currently accounts for one third of UK carbon emissions. Substituting ’green’ communal generation in place of millions of individual gas boilers helps to tackle this
• as part of the ’energy transition’, combined with electricity generation, they allow for local and flexible energy generation and consumption, as well as  addressing fuel poverty
• they allow developers to satisfy planners’ environmental targets and can open up new revenue streams, or reduce utility costs, for owners and tenants

 

Current arrangements

For design and construction CP1 Heat networks: Code of Practice for the UK produced by The Chartered Institution of Building Services Engineers and the Association for Decentralised Energy sets minimum, but voluntary, standards and suggests best practice in relation to HN design, construction, commissioning and operation.

For ’heat suppliers’ (eg landlords) The Heat Network (Metering and Billing) Regulations 2014 sets out legal requirements on matters such as:

• notifying government of HNs
• installing meters
• billing for heat

 

The regulations also provide for civil and potentially criminal sanctions.

For providers/landlords and tenants/customers the voluntary Heat Trust Scheme effectively mirrors the requirements placed on gas and electricity suppliers and the consumer protections given to more traditional energy network consumers, as policed by Ofgem.

The scheme covers matters such as:

• guaranteed performance standards
• metering and billing
• complaints handling
• protection of consumers in a vulnerable situation

 

The scheme also provides for access to the energy ombudsman for binding consumer complaints resolution.

New regulation

In 2018, CMA produced a report recommending regulation of HNs by Ofgem, with a particular focus on consumer protection. CMA thought the priorities for regulation were:

• ensuring all HN customers receive the same minimum protections
• price controls, with ’principles-based regulation’ aiming to achieve some cost reflectivity and transparency for consumers
• quality of service protections similar to gas and electricity customers, with particular emphasis on consumers in a vulnerable situation
• transparency for consumers, to enable informed decisions and actions
  minimum technical standards of performance and efficiency.

 

To add to the CMA’s list, network access for potential customers and returns on investment for network operators is a concern that Ofgem and others are alive to, as is giving HN developers similar access rights to other utilities.

All the signs are that government will accept the CMA recommendations and that in the next couple of years HNs will be regulated by Ofgem. Whilst an HN regime will differ in the details, the fundamental approach will be as it is for the gas and electricity markets.

Charging tenants for energy

It is also important to remember that Ofgem Maximum Resale Price provisions mean that landlords who re-sell gas and electricity to their tenants are prohibited from charging any more than they themselves pay for the energy. Ofgem has clarified that the prohibition does not apply for the purposes of electric vehicle charging. 

You need to think about energy

HNs, and the wider energy transition (more local generation, flexibility, electric vehicles etc) offer great opportunities for developers, the social housing sector, private landlords, business innovators and tenants. It is important to be aware of the existing legal obligations and future regulatory developments.

Penningtons Manches’ specialist team of property, construction and energy regulation lawyers is here to help.