Heat networks and energy prices

Heat networks distribute heat from a centralised heat source (such as a single, central boiler) directly to homes and other buildings. Heat networks are generally efficient ways of delivering heat, as they benefit from large scale heat generation and can use waste heat resources.

Communal heat networks heat two or more dwellings within one building (such as flats), while district heat networks connect multiple buildings.

There are 14,000 heat networks in Great Britain, serving around 500,000 customers.

Heat networks can reduce the greenhouse gas emissions of heating, and the costs of heating for end users. The Government is exploring ways to expand the use of heat networks in future, to help deliver the UK’s ‘net zero’ target.

A Westminster Hall debate on “the energy price cap and residential buildings with communal heating systems” has been scheduled for 20 April 2022 at 4.30pm.

Existing regulation

The devolution of heat policy and heat network regulation across the UK is complex:

• In Scotland heat policy is devolved, but consumer protection is reserved to the UK Parliament;
• In Wales heat networks (and schemes to facilitate or incentivise them) are devolved, but regulation of heat networks is reserved to the UK Parliament;
• In Northern Ireland both consumer protection and regulation of heat networks are devolved to the Northern Ireland Assembly.

This research briefing focuses on arrangements for heat networks in Great Britain.

Unlike gas and electricity, heat networks do not currently have an official regulator in Great Britain. This means that while the supply of gas to a heat network is regulated, the supply of heat from the network to homes is not.

The Heat Network (Metering and Billing) Regulations 2014 require that where cost effective and technically feasible, heat network suppliers must provide individual meters to heat network customers, and provide them with bills based on the meter readings.

The Heat Networks (Scotland) Act 2021 aims to encourage greater use of heat networks in Scotland by providing targets, rules and regulations on them.

Energy price cap

The energy price cap (also known as the Default Tariff Cap) sets a price limit on default tariffs for domestic supplies of electricity and gas.

The cap rose by 54% on 1 April 2022, increasing the average annual domestic energy bill to around £2,000. It is forecast to rise by a further 30 to 50% in October 2022.

Most heat network customers are not protected by the cap, since the supply of gas to heat networks is commonly classed as “non-domestic”. This is because the heat network operator purchases gas and then converts this to heat, before selling the heat on to households, often on a commercial basis.

Heat networks operated on a not-for-profit basis can be classed as domestic supply (and so covered by cap), under certain circumstances.

The impact of energy price rises on heat network customers

Since late 2021 energy prices have risen substantially. Heat network operators who have renewed their commercial gas contracts since the autumn have seen large price increases, which they are passing onto customers. According to Heat Trust (a consumer protection scheme), consumers and landlords have reported heat network price rises of up to 700%.

The Government has said that price rises on larger district heat networks are “broadly in line” with the energy price cap, but noted that larger increases have been seen on smaller communal heat networks.

In response to the price rises, there have been calls in Parliament, and elsewhere, for the Government to introduce price protections for heat network customers.

Proposals to regulate heat networks

The Government has said it wants “heat network consumer to have comparable levels of service and protection to those using electricity and gas”.

Following the recommendations of the Competition and Market Authority’s (CMA’s) 2018 Heat Network Markets Study, the Government has developed proposals to regulate the heat networks sector. These include appointing Ofgem as the regulator, and granting it new powers to regulate heat network prices.

Under the proposals the Government does not intend to introduce a price cap for heat networks currently, but it plans for the Secretary of State to have powers to introduce pricing regulation in the future.

The Government has committed to introducing legislation to regulate heat networks during this Parliament.

Support for constituents

Making a complaint

Customers who believe they have been unfairly treated by their heat network provider should complain to their provider in the first instance.

Heat network customers can access the Energy Ombudsman for complaints if their heat network provider is signed up to Heat Trust, a voluntary consumer protection scheme.

In certain circumstances, heat network customers may be able to make a complaint through an alternative dispute resolution (ADR), the Housing Ombudsman, or their residents’ association.

Help with energy bills

Heat Trust and Citizens’ Advice have advice for heat network customers who have problems with their energy bills. This includes guidance for customers whose heat network is not registered with Heat Trust.

Ofgem has advice to help consumers with energy problems more generally.