Households connected to communal or district heat networks are often paying twice as much for their heat as those with their own gas boiler, points out Heat Trust, an organization that bills itself as a consumer champion for heat networks.
The group has urged the government to take action to lower the cost of heat and has recently met the new heat networks minister, Miatta Fahnbulleh MP, to set out the two reforms needed to bring down heat prices.
These reforms, in addition to the government’s current plans to regulate heat networks, are:
1) Regulate the price of energy (gas and electricity) used by residential heat networks to generate heat. Currently these energy supplies are classed as non-domestic and are unregulated with no price-capping mechanism; and
2) Ensure that the billions of pounds of essential remediation works needed to address the poor efficiency of existing heat networks do not result in households bearing large capital remediation costs over the coming decade.
Non-domestic energy prices are currently around three times higher than before the energy crisis, whereas domestic capped energy prices are less than double pre-crisis levels.
Regulating the price of the energy that heat networks use to generate their heat (with an equivalent to the domestic price cap) would ensure fair and stable prices for heat network consumers by shifting the hedging risk to the commercial energy suppliers, where it can be much more effectively managed. It would also end the inequity of heat networks with lower income households facing a poverty premium in energy costs due to being seen by commercial energy suppliers as high debt risk and priced accordingly.
Regulations should also require the commercial energy suppliers who supply the energy used by residential heat networks to guarantee the same security of supply to a heat network with domestic customers that they would to an individual domestic customer (for example a ban on disconnection of a building for debt where it contains vulnerable end customers) and ensure that compensation for outages in energy supply to the heat network reflects the number of end domestic consumers affected.
To lower heat prices will also require major remediation works to improve the efficiency of existing heat networks – many of which are currently only 30-40% efficient. The forthcoming Heat Networks Technical Assurance Scheme will require building owners to make these improvements over the next decade, and Heat Trust believes that the cost of these improvements is likely to run into many billions of pounds across the country.
Without government action, the cost of these works will fall on leaseholders, many of whom will already be facing the burden of cladding replacement costs. Local authorities and housing associations have many of the oldest heat networks and therefore are likely to face the highest remediation or retrofit costs and will need government support to pay for these works.
Stephen Knight, Chief Executive of Heat Trust, said:
“Heat networks will have an increasing role to play in how we heat our homes in cities and towns in the coming decades, as we move away from a reliance on gas boilers. However, we currently see too many examples of poorly designed, inefficient heat networks that generate heat using expensive commercial energy contracts. This often results in high heating bills for their residents as the end consumers. The regulations around how they are built and powered need urgent reform to ensure that they are efficient and can deliver low-cost heat to homes. This goes beyond the scope of current plans to regulate heat network operators.
“The current regulatory structure of the energy market means that we see some heat network operators having to pay even more for their energy than the domestic price cap. This requires regulatory change to get a better, more consistent deal for heat network consumers.
“Most existing heat networks also waste too much energy in avoidable heat losses, which makes them expensive for consumers. Thankfully the forthcoming technical standards rules for heat networks will require building owners to invest in making their heat networks much more efficient, but this will cost billions and take years to deliver. It is essential that government ensures that consumers are protected from having to bear these costs, especially where the original design or installation of the heat network was just not fit for purpose.”
