As Chirpy Heat turns five, Director and Co-Founder Will Routh reflects on the journey of heat network management for housing providers, from managing communal boilers as part of their landlord duty to imminently becoming fully regulated energy companies. It’s a journey that reflects a rapidly changing and challenging landscape that has some lessons for the social housing sector as a whole.

 

The ghosts of heat network past

Over the last decade, since the introduction of the Heat Network (Metering and Billing) Regulations (HNMBR) in 2014, housing providers that operate heat networks (a catch-all term for where one heat source serves more than one property and includes both communal heating or connection to a district heating scheme) have seen their role change significantly, from a landlord providing heat and hot water to becoming what has been coined ‘accidental energy providers’.

This role of accidental energy provider includes:

• Notifying government of the heat networks under operation
• Installing meters on new build schemes and retrofitting them where it is viable
• Metering and billing residents for their consumption, including setting heat tariffs
• Repairing, maintaining and replacing the heat network assets
• Being the point of customer communication, including day-to-day queries and complaints

 

The role of energy supplier is not something that the social housing sector asked for, and I think it is fair to say that it has not been a natural fit and one that is taking a period of transition and adaptation.

In 2010, when I became energy and sustainability lead at a large housing association, I became directly responsible for managing heat networks; a real challenge that took me a long time to try to get my head around the different parts of the jigsaw. As I embraced the challenge, the more I dug, the more problems I found; the more questions I asked, the more answers I failed to find. Challenges came thick and fast, in all shapes and sizes. There didn’t seem to be any consistency, the learning feedback loop was long (another new development, with another different heat network set up!) and there didn’t seem to be a place to turn for help and support.

For many years, I, and others like me, fumbled in the dark of heat network management, responding to operational issues such as customer complaints, reliability issues, managing multiple contracts for metering and billing and grappling with the new regulatory requirements. Until about 2017/18, there were no in-house ‘Heat Network Managers’ at housing providers, no ‘Heat Network Consultancies’ that provided advice and support. What generally seems to happen is an internal game of hot potato, with the role of heat network management eventually falling onto the desks of those in the energy, sustainability or assets teams.

As a natural born problem solver, especially in relation to reducing carbon emissions and alleviating fuel poverty, I realised that this was a situation where I’d need to find my own answers and create my own support. Over the last 6 years this has led to the following:

• Formation of The Heat Network in 2017 a forum to discuss and share good practice about district and communal heating within social housing that collectively represents over 125,000 homes on over 3000 heat networks, 22% of all heat networks and 26% of all customers as defined by DESNZ.  It is a place where those involved in communal heat within the social housing sector bring together their experiences and share the lessons learnt.  It has also developed as a conduit for social housing input into national heat network policy.
• Starting Chirpy Heat in 2019, along with my two co-founders Rachael Mills and Nicholas Doyle, to offer independent heat network consultancy support to the social housing sector. Chirpy Heat is now celebrating its 5^th Birthday and goes from strength to strength with a nationwide team and housing clients across the country that account for 25% of the country’s heat networks.  Working with those housing teams, we’ve developed a full-service suite of heat network support from the plant room to the board room. This is all with one simple aim in mind; to deliver simply better heat networks  – for clients, for customers and for the low carbon future.
• Co-creation of The Heat Exchanger mentoring programme to help support the professional growth and development of those in the heat network sector.

 

The present: a hidden energy company and reactive management approach

From our work across the sector, we generally find that on average heat networks serve about 10% of a housing provider’s portfolio with the main variables being the amount of sheltered and supported housing and amount of stock in urban centres where heat networks have been part of planning policy for the last 5-10 years. This percentage will likely grow over the coming years as more new developments have communal heating and city-wide district heating schemes are built.

In practice, this means that housing providers are already operating a large energy business within their housing organisation. For example, a small housing provider with ten thousand properties in total, with 10% served by heat networks will have a heat network energy business with a turnover of around £1.2m, asset value of circa £5m and, based on debt and under-recovering averages we see across the sector, an annual financial operating risk of about £100k (i.e. they are likely to lose this money each year without proactive management).

In terms of management approach, a handful of housing providers have created specialist heat network positions or teams (depending upon the size of their portfolio) to get on top of heat network management. However for most providers, responsibility is still tagged onto other job roles. In reality, this means that across the sector there is generally a reactive approach to heat network management due to:

• Lack of resource: both capacity and internal expertise means that only the essential operational tasks get undertaken; compliance notifications, complaint responses, heating repairs, and heat tariffs are set.
• More resource often leads to the uncovering of new heat networks and heat network issues that have gone unaddressed for significant periods of time as they have not had any resource to focus on them, creating a long to-do list before the strategic tasks can be properly looked at.

 

This results in longer-term management issues and strategic approaches getting very little bandwidth internally.  And this is on top of other pressures including Building Safety, Awaab’s Law addressing damp, mould and condensation, and the delivery of net zero (with significant grant support from the Social Housing Decarbonisation Fund) which means that heat network problems remain unsolved, addressed locally by housing officers or repairs teams, and repeat year-on-year or with each new heat network coming online.

This reality of heat networks in the social housing sector is reflected in our recent blog, looking at the current situation across the sector and how prepared it is for what is coming in 2025 with full heat network regulation.

 

The future: full regulation and strategic management

With the introduction of full heat network regulation in Spring 2025, it’s not so much the goalposts being moved as the whole game changing. This time next year, housing providers that operate heat networks will be fully regulated energy suppliers, with Ofgem being the new Regulator for heat and overseeing a wide range of new regulations that housing providers will have to meet.

The obligations, and risks of heat network management become much, much higher.

This will require a fundamental mindset shift in the sector in terms of the approach to heat network management:

• From that of a housing provider operating communal heating systems to thinking like an energy company such as British Gas or E.On.  One of the main aims of heat network regulation is to provide the same level of customer protection as other utilities such as electricity, gas or water. Whilst housing providers are generally good at customer support and will be very supportive of this consumer protection legislation, this will require the development or adjustment of a whole raft of policies and procedures to meet the new regulations over the next 12 months.

• From reactive to strategic: heat network operators will be required to monitor and regularly report heat network performance across a range of metrics to Ofgem. This information will need to be collected from meters, contractors, internal teams and then collated, analysed and submitted. As well as consumer protection, there will also be heat network technical standards to adhere to for both existing and new heat networks as well as the impacts of heat network zoning, where new buildings and existing communal schemes will be mandated to connect in designated heat zones, of which there are expected to be over 200 in England and Wales.

• From problem solving to risk prevention: the new regulation comes with the threat of unlimited fines for non-compliance, a significant financial risk. The recent Energy Bill Discount Scheme (EBDS) fines of up to £5,000 per heat network is a good indicator of what may come – with that alone presenting a financial risk of hundreds of thousands of pounds to heat network operators.

 

In addition, new housing schemes with heat networks will be required to have all the policies and processes in place before they can supply heat and hot water, which means a potential threat to rental income or sales due to delays in heat network authorisation.

At an individual customer level, end customers will have access to the Energy Ombudsman for complaints.  Ofgem will also be introducing ‘step-in’ procedures to protect customers in the cases where operators become insolvent or where there’s persistent poor performance.

 

What you should do to prepare

Whilst all the above sounds particularly daunting, many in the sector are already planning and putting in place comprehensive action plans. With support from Chirpy Heat, they are making the necessary adjustments and moving from a reactive to a long-term strategic approach.

The key as always is strategic planning. For some time, we have been working with the sector to deliver this using a step-by-step model:

1. Understand: identify your current position, including your challenges and objectives, and provide a clear assessment of where your heat networks are and how they can be improved.
2. React: provide solutions to immediate issues (e.g. compliance, customers, contractors) to reduce management time, resources and headaches for you and your customers.
3. Plan: create a comprehensive, long-term, strategic plan for better heat networks, encapsulating all aspects including compliance, costs, customers, contractors, carbon and construction.
4. Deliver: deliver the programme of heat network management improvement, ensuring that progress, new ways of working and ongoing monitoring become integrated into every day management as the new ‘business as usual’ to deliver low cost, low carbon heat networks for you and your customers.

 

The aim of this approach is to provide:

• A deeper, holistic understanding of where you currently are in your heat network management journey
• A planned programme of support to prepare for incoming heat network regulation
• Additional capacity to undertake operational tasks, to free up internal time and resource at this time of incoming regulation
• Expert resource for your organisation and heat network teams to call on
• Engagement opportunities for decision makers to understand the requirements of incoming regulations aimed at Boards, Executive and Senior Leadership Teams
• Training and practical support for operational teams, implementing all the processes and policies required for regulation and to improve heat network management
• Flexibility, to support those unforeseen challenges, opportunities, issues and requests that will inevitably arise during the year

 

We place data at the heart of the support we provide to clients so we can help them transition from reactive to strategic, to understand current performance and to make strategic asset management, decarbonisation and customer support decisions

The change for the sector has been rapid and more change will be needed. However, new challenges are something the housing sector has always responded well to; we are already seeing many in the sector rising to this and working towards compliance.  They are also beginning to see the wider benefits in terms of better heat networks that deliver affordable, reliable and low carbon heating for them and their customers.  The time to plan your budgets for 2025/26 are now, and heat network compliance needs to be in them.

If you want to find out more about heat network regulation and to discuss your journey to full compliance and delivering simply better heat networks get in touch at [email protected].