Full heat network regulation is coming in Spring 2025. The social housing sector is by far the largest operator of heat networks in the country: how this regulation is developed and rolled out will have huge impacts for them and their customers. Getting regulation right will be important for them and could be even more important for Ofgem.

We still have a few rounds of consultation to go, but the Government response to the consumer protection consultation came out a few weeks ago and there are some key messages and some take aways for everyone involved.

KEY MESSAGES FOR THE HOUSING SECTOR (AND FOR OFGEM)

• The need for regulation is not in doubt: heat networks are a utility like gas and electricity but are a natural monopoly. Customers need to have access to affordable, reliable, low carbon heating and hot water. These objectives are fully supported by social housing.

• There are no major changes to the proposed regulation.  However, there may be some segmentation to reflect the diversity of the sector.

• The costs for heat network regulation will initially be spread across other utilities including gas and electricity. This should give Ofgem the resources it needs to meet the challenges of new regulation in a new sector.

• Authorisation of all schemes needs a confirmed date in Spring 2025. If Ofgem want the sector to commit to regulation they have to make a similar commitment and not continue to hedge their bets. With a date in place, all the other details on data requirements, metering and technical standards can then follow with a realistic timetable that does not lead to an unnecessary price hike for customers.

• There are many areas – certainly for the social sector – where there is agreement and common cause particularly around the main purpose of the regulations, particularly around consumer protection. However, many of the details around metering, data, reporting and technical standards need much more work and input from the sector if they are not to lead to perverse outcomes, the most likely of which is higher costs for customers.

• There remain issues around overlaps with existing housing regulation and ensuring that there is also clarity and consistency from both Regulators and Ombudsmen.

• Ofgem must carry out proper and proportionate engagement with the largest managers of heat networks. Ofgem are making some progress, but the engagement does not reflect the scale of the sector and is still far too focused on the supply chain. The cursory engagement of the sector on the critical technical standards risks them failing and leading to huge increases in costs for customers.

• There is rapidly growing awareness of the new heat network regulation in the housing sector. Directors and main boards are now engaging and working through what the regulations could mean for them. But to turn this into action they need certainty – or at least to know what things will happen and when, and those things that will need further work and may come later. This includes confirming the regulation Go Live date and clarity on what authorisation means for new developments will mean. Housing providers need certainty in order to plan now for the resources needed for the 2025/26 introduction of regulations.

SOME OF THE PRACTICAL DETAILS

• Pricing: although it is being kept under review, it is not proposed to introduce a price cap. However, price reporting will be required and may be published. Publishing brings significant challenges if it is to be of value to customers, given the diversity of the heat networks and the current lack of information on costs.

• Complaints handling: the social sector has well-developed complaints handling processes. Ofgem are engaging with both the Energy and Housing Ombudsman, but it is important that the result is not multiple complaints processes which add cost and confusion for customers.

• Vulnerable customers: protections are developing in line with the gas and electricity markets.  Helping vulnerable customers is part of the social housing DNA and this should guide the regulations.

• Meters and billing [1]: the assumption will be for meters to be installed. This is a change from the current regulations that has led to low take up of meters. Meters bring multiple benefits but the timescale for their roll out needs to ensure that their costs do not lead to price increases for customers.

• Meters and billing [2]: the sector has been using flexible, accessible and affordable payment choices for customers that protects them from disconnection and debt for many years.  The use of Pay-As-You-Go should not be equated with the old school pre-payment meters.

• Meters and billing [3]: more work will be done with the housing sector on finalising back-billing limits, though Ofgem’s preference is to align with 12-month standard in place for gas and electricity.  The Office for Product Standards and Safety (OPSS) will regulate heat meter accuracy, which is critical to accurately identify efficiency in heat networks and setting the right tariffs. Sadly, the accuracy of meters is not a given and the social sector needs to be involved in the specification of meters in the future.

• Shared Ground Loop (SGL) systems have been confirmed as being included within the regulations, but more details need to be worked through.

• Authorisation of new schemes: whilst all existing schemes will automatically be authorised, new heat networks will have to gain authorisation before commissioning. Given the long lead in time for new developments and that many will be commissioned soon after Spring 2025, it’s urgent that the requirements for new build authorisation are set out clearly. They should mostly be deliverable but what is required and when needs to be set out as soon as possible after the General Election.

• The Guaranteed Standards of Performance (GSoP) will set out record keeping and interruption parameter as per the existing Heat Trust guidelines. This needs to be reviewed in light of the impact on costs for customers and the current extensive arrangements in place in social housing.

Housing providers across the UK are already putting in their plans for full compliance with the support of Chirpy Heat.  Do get in touch via [email protected] to chat through what the regulations will mean for you.