It’s a challenging time for heat network owners and operators. Big changes to the sector’s governance are set to be rolled out from the spring aimed at providing stronger consumer protection and reducing emissions. This will bring previously lax heat network regulations into line with other energy services.
Although the finer details of the new rules are not yet known, we have a pretty clear idea of what they will entail. Above all, heat network operators and heat suppliers will need to demonstrate they’re giving residents high quality service and value for money, while behaving “fairly, honestly, transparently, appropriately, and professionally” at all times.
Tariffs are likely to be sector-benchmarked and broken down into component parts, including asset depreciation, repairs, administration and variable fuel and production costs. Equipment, including metering, will need to be fit for purpose and working effectively, and organisations will have to meet exacting standards relating to support for vulnerable customers and provision of information to (potential) residents.
As well as consumer protection, the Department for Energy Security & Net Zero (DESNZ) will introduce additional regulations encompassing technical standards, carbon emissions and step-in arrangements in case of repeated failings. Heat network zones – designated geographic areas where heat networks are expected to provide the lowest-cost solution for decarbonising heat – will also be rolled out nationally.
Penalties
All this will be underpinned by better oversight from Ofgem, with customers having access to support from the Energy Ombudsman and advocacy bodies to resolve complaints. More stringent enforcement measures are likely to include external audits, financial penalties or cancellation of licenses in the cases of serious transgressions.
It’s worth noting, too, that the legal responsibility for compliance with the new regulations cannot be outsourced to third-party suppliers. That doesn’t mean, though, that they can’t help you prepare. In fact, now might be a good time to lean on the expertise of specialist contractors to help you get your billing and administration systems in order, reduce costs, and optimise your equipment.
Guidance and support
There’s a lot to get on top of, and time is running out to make a start. It can feel a little overwhelming.
However, the good news is the new requirements are being built around Heat Trust’s existing consumer protection standards and Ofgem’s existing regulations. So, if you’re already adhering to those, you should also be well on your way to where you need to be. If you’re not, they’re a great place to start.
There’s also help out there if you need it. As well as your own suppliers, there are a number of industry bodies and associations like the Heat Trust that offer resources and support. Ofgem and the Department for Energy Security & Net Zero (DESNZ) can offer guidance, too. And we’ve created a detailed checklist of tasks in our heat network consumer protection guidance document which aims to alleviate the stress of preparing for the pending regulations.
Above all, don’t panic! No one expects organisations to be fully compliant with all the new rules from day one, as long as they are moving as fast as they can in the right direction.
To do list
There are several steps you can take now to prepare for the new regime.
- Optimise your system - The single most important thing to do is ensure your system is working really well and being properly maintained. Most UK heat networks run at only 35-45% efficiency*, primarily due to ineffective operation and management. As well as sky-high energy bills, this leads to shorter repair and replacement cycles, impaired comfort for users and even potential safety issues.
Implementing a thorough maintenance regimen, ideally via a planned preventative maintenance (PPM) contract, is crucial. This should cover every aspect of the system, including meters and heat interface units (HIUs).
- Get on top of metering and billing – Precise, effective metering will play a crucial role in ensuring your organisation can meet its transparency and reporting obligations. Meters can also help to identify any abnormal consumption levels so you can keep your heat network functioning optimally and costs down.
Smart meters should be installed as standard across all properties, barring a small number of exemptions. Meters should also be included in regular maintenance regimes and replaced when they near the end of their expected life. If they fail, bills will be inaccurate, leading to residents being over- or undercharged, and making it difficult to manage heat network financials.
- Review your policies – Re-examine your protocols for areas like pricing, safety, complaints and protecting vulnerable users. Check they’re robust, up-to-date, aligned with best practice and being followed.
This is also a good time to review practices around end-user communications, making sure they’re in plain language, complete, not misleading, and sufficient for informed choices.
- Check in with your suppliers - Start talking to your contractors now to make sure everyone understands who’s doing what and what they need from you to provide the best support possible. Our guidance document should help you unpick which activities you can delegate to different types of service providers, and which should be carried out by internal teams.
Check contract terms and SLAs as well to see if they’re sufficient for your needs. If appointing new contractors, check they have complete and up-to-date knowledge of the changing regulatory landscape, the Heat Trust standards and the intricacies of heat network management.
A bright future
Remember, the new legislation isn’t designed to catch you out, but rather help you deliver a cost-effective, high-quality, environmentally friendly service to users. Ofgem wants you to succeed at that.
This is an exciting time for heat networks. They are a vital part of the UK’s net zero strategy thanks to their potential to provide highly efficient, low carbon heat at scale. These new regulations could make all the difference in ensuring that potential is realised rapidly, for everyone’s benefit.
Emily Lister, Sales and Marketing Director at Insite Energy
