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Can heat networks do better than the regulated gas sector?

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As large energy suppliers announce household gas prices will go up by around 8%, just days after Ed Miliband’s price freeze promise, it is questionable as to whether regulated competition adequately protects customers and delivers value for money.

 A small but growing number of customers have their heat demand met by suppliers not covered by the gas or electricity regulations, with no role for Ofgem or the Energy Ombudsman in customer protection. In the UK, 97% of householders currently heat their homes and water through individual gas boilers, but around 2% of demand, is now served by heat networks. Heat networks (also called district heating) deliver heat from a local energy centre through a system of insulated pipes to homes and businesses. With radiators and thermostats heat network customers have the same experience as they would have with an individual solution, but with the advantage of not needing to purchase, maintain or insure a gas boiler or electric heaters. 

Recent estimates forecast investment in heat networks of about £500m in the coming years, which could mean that 14% of heating and hot water needs will be met by heat networks by 2030. This investment is likely to attract new suppliers and it is therefore a useful point at which to consider how to ensure that heat customers, who cannot switch suppliers, will receive appropriate standards of service and protection. With a one-in one-out approach to regulation established by this Government’s red tape challenge, is there an alternative to statutory protection for heat customers?

The district heating industry has been working with consumer representatives since 2012 and has drawn up proposals for a form of self-regulation. The Independent Heat Customer Protection Scheme proposals, launched for consultation last week, set out quality standards that suppliers must attain across all aspects of their domestic and micro-business heat supply agreements and supports this with proposals for an independent adjudication service; dispute resolution at no cost to the customer.

Price and price transparency are key concerns for all energy consumers. Under the Independent Heat Customer Protection Scheme proposals suppliers must provide customers with transparent heat charge calculations, indicate how prices might change in the future and provide an industry-wide heat charge comparator. The comparator would illustrate, for the heat network customer’s demand, what their costs would have been if they had a gas boiler or electric storage heater. The proposals also specify that suppliers must have alternative arrangements in place to ensure that customers continue to receive heat in the event that the supplier fails.

The consultation seeks views on whether these heat customer protection proposals are appropriate for a fledgling industry and whether they go far enough in terms of customer protection. Will the proposals help reduce perceived risks in the minds of heat network investors, thereby reducing the cost of capital? And will this, in turn, help to secure affordable heat for future network customers, putting consumers at the heart of the energy system, and delivering a better deal than state regulated electricity and gas markets?

Join us at Heat 2013 to have your say or submit your views through the consultation; open until 29 November. 

 


Nicola is the Policy and Development Manager at the Combined Heat and Power Association. The CHPA convenes meetings and provides secretariat to the Independent Heat Customer Protection Scheme. 

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