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CMA backs Ofgem for first heat network regulator role

Study into current industry approach to heat network use and management finds need for improved transparency around service costs and quality levels

The Competition and Markets Authority (CMA) has called for Ofgem to be appointed regulator of the heat network sector across England and Wales to help ensure improved take-up of the technology.

Conclusions from a CMA study into the sector have concluded that all heat network customers must be provided a consistent level of consumer protection due to concerns about “low levels of transparency” concerning their use.

Among key areas of focus for the CMA study were the current levels of customer awareness of the costs of using heat networks before and after moving into a property, and if the technology creates a natural monopoly. It also considered service quality and the overall reliability of heat network technology.

The CMA’s report raised concerns around private sector networks and how customers linked to these networks may not be given clear information on the terms of their agreement.

The appointment of a regulator to oversee the market for heat networks is intended to therefore improve consumer understanding of the services they are paying for and protect users from poorly designed, built or operated networks, according to the CMA.

Andrea Coscelli, chief executive of the CMA, said that the Ofgem was their preferred choice to serve as a first of a kind regulator for the industry.

He said, “With 14,000 heat networks supplying 450,000 people with heating across the UK, they can be an efficient and environmentally-friendly way for people to heat their homes.”

“But there are problems with how some operate, especially for those in private housing. People must benefit from the same level of protection as those using gas or electricity, and not be penalised either by paying too much or receiving a poor-quality service.”

Legislative changes

New primary legislation will now be required in order to extend Ofgem’s remit to include heat networks. The CMA said it had now published an open letter in the meantime that urges energy suppliers to ensure they are meeting obligations around competition and consumer law.

It is understood that a government response to the CMA’s calls will be expected within the next three months that could lay out a potential approach to introducing the new regulation. Similar considerations will also be made on the potential implications for the heat network sector in Scotland, where policy is a function of the devolved government.

Establishing minimum technical standards for heat networks along with ongoing work to set out a voluntary quality assurance scheme are among some of the core recommendations in the open letter.

Industry is urged to work within the Domestic Building Services Compliance Guide and follow the CIBSE ADE Heat Networks Code of Practice (CP1) whilst this work continues to ensure a higher level of operational efficiency in current networks.

Ofgem chief executive Dermot Nolan welcomed the CMA market study, which was launched late last year as a means of ensuring the heat network customers are afforded similar protections to those offered through the gas and electric heating sector.

He said, “We look forward to continuing to work with the government to address the current and future challenges in decarbonising heat and would welcome the opportunity to contribute to the development of the future regulatory arrangements for heat networks.”

Industry response

The Association for Decentralised Energy (ADE) said it backed the CMA’s conclusions, while also calling for government to consider how best to reduce investment risk from using such systems.

ADE said that regulation would be vital to ensure that the potential cost and environmental benefits of a heat network could be realise din line with the government’s wider decarbonisation aims.

A lack of regulation was viewed as setting back efforts to guarantee consumer protection in line with other types of heating solutions.

Dr Tim Rotheray, director of the ADE, argued that the heat network industry had already pushed for improved standards, such as the introduction of the Heat Trust customer protection scheme and a code of practice detailing minimum technical standards.

He said, “The CMA has acknowledged heat networks can deliver real customer benefit and recognised that industry is already taking action to ensure all customers on heat networks receive these benefits.

“This is recognition that industry isn’t paying lip service to driving up standards but actively implementing changes to ensure all customers enjoy a positive heat network experience.”

Dr Rotheray also asked government to look at means of curbing potential investment risk to allow for heat pumps to be considered as part of a wider solution to meeting the aims of its Clean Growth Strategy. This is a long-term plan to curb carbon emissions from UK infrastructure.

He said, “Securing investment and protecting customers are two sides of the same coin; contented customers are key to investors being confident and willing to invest, which in turn drives down investment cost and so customers’ heat bills.”

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