Proposals for the regulation of heat networks close on 1 May 2020 – still time for property and energy companies to get involved

Posted: 27/02/2020

The established worlds of property and energy increasingly mix in all sorts of ways: self-generation, EV charging points, building efficiency, and controlling energy demand in response to price signals being just a few examples.

Heat is currently responsible for around one third of our greenhouse gas emissions and the Government is keen to encourage greater use of low carbon heat networks in response to this. It is now consulting on proposals for the regulation of heat networks, with a closing date of 1 May 2020 for responses. All those interested in property or energy should take note.

What are heat networks?

Heat networks distribute heat or cooling in the form of steam and liquids from central sources to multiple buildings or sites (district heating) or to multiple customers in the same building (communal heating). They have played a smaller part in the British property and energy markets than, for example, in the Netherlands, Germany and Nordic countries but the Government now views these networks as playing an increasingly important role in domestic and non-domestic heat provision as we transition towards low-carbon energy systems.

However, the potential expansion of heat networks poses a number of questions for consumers, tenants, landlords, developers, local authorities and policy makers. Should consumers be protected and heat providers be regulated as is the case with the established gas and electricity utilities? How can networks be encouraged by dealing with known issues such as “connection risk”?

What is the current regulation and support?  

Limited regulation already exists. The Heat Networks (Metering and Billing Regulations) 2014 contain requirements for the metering of consumption and billing of consumers as its name suggests. They also include a requirement to register networks with the Office for Product Safety and Standards.  Registrations need to be updated every four years and existing networks registered by the original 31 December 2015 deadline should either have renewed by now or need to be renewed as soon as possible.

A separate government consultation recently closed on amending the technical feasibility and cost-effectiveness tests applied under the regulations to decisions on whether to install final consumption meters and billing based on consumption.

Heat Trust is an independent, non-profit consumer champion for heat networks that runs a voluntary scheme of self-regulation (with audits and compliance processes) and provides for resolution of complaints via the energy ombudsman. The Government’s consultation recommends Heat Trust, its scheme and work as a good resource for those thinking about consumer protection and wanting to be ready for consumer-focussed regulation.

The ADE–CIBSE CP1 Code of Practice provides voluntary minimum standards for the design, installation and operation of heat networks.

Funding and support for potential heat networks is available from the Government’s Heat Networks Investment Project, which has £320 million of funding, and the Heat Network Delivery Unit. The Government has also published a Standardised Due Diligence Set for potential heat network investment.

What is proposed now?

The Government is now proposing some significant changes to create a new regulatory regime. The 84 pages of consultation are a fairly easy read and the details will be important to anyone involved in or considering involvement in heat networks.

In summary, the Government is proposing the following:

• Ofgem to be the regulator to:
  • set consumer protection rules on matters such as information provision, pricing and quality of service
  • monitor and enforce compliance for consumer protection, as it already does with energy suppliers, but also doing so for mandatory technical standards and decarbonisation targets
  • issue licences that would give additional statutory rights.

• The energy ombudsman will be the heat sector ombudsman.
• An authorisation regime generally rather than licensing as with existing Ofgem-regulated energy networks and suppliers. The regime will include domestic consumer protection, technical standards and decarbonisation targets applying automatically to heat networks. This also envisages certification of compliance at the point that the design and build stages of a development project end and the ongoing operation and maintenance of the network begins.
• A specific licensing regime for the granting of rights and powers, similar to those already held by statutory undertakings such as land access, permitted development and street works rights etc).

Engage now

As well as giving you the opportunity to contribute to the development of the new regime, the consultation also provides the opportunity to start preparing for your (potential) connection to heat networks.

Penningtons Manches Cooper has expertise in all relevant areas including construction, planning, real estate, financing, energy regulation and consumer protection. Talk to us for further insights in this important area.

A version of this article was published in Estates Gazette in March 2020.

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