More than half a million energy consumers are at even greater risk of being pushed into financial difficulties than the rest of us because they are not protected by the Ofgem price cap, which limits the increase in energy prices.
Urgent action from the Government is being demanded by the consumer protection body Heat Trust to correct this anomaly before heat network customers are hit by projected energy price increases of a staggering 700 per cent.
This would dwarf the 54 per cent price increase that the rest of us are already pulling in our belts to pay for.
Without immediate and effective action being taken now to bring heat networks within the protection of the energy regulator’s price cap, this could also cut off one of the main solutions to achieving significant reductions in carbon emissions from the country’s housing stock.
Making current energy supplies more efficient and affordable appears a reasonable ambition
Heat networks explained
Heat networks are a type of heating that sees heat generated from a central source and then transported to one or more buildings via pipes.
Often referred to as communal or district heating systems, they are an increasingly popular source of heating for blocks of flats in towns and cities and have been identified as playing a key plank in the Government’s net zero strategy.
To date they have mainly been used on social housing estates operated by councils and housing associations, but private landlords and others are being encouraged to consider their use where heat pumps and solar panels may not be the best alternative to conventional gas boilers.
While the majority of existing heat networks in the UK are currently run on gas, other greener heat sources can also be used.
However, heat networks are largely unregulated at present, which has already led to some residents reporting problems with soaring bills.
Lack of protection
The problem stems from the fact that Ofgem’s regulatory remit and price cap powers do not currently apply to the heat network market, where operators buy gas on the commercial rather than the regulated domestic gas market.
Last autumn the wholesale gas price averaged around 1.5p/kWh, but it then peaked at 27p/kWh in March and has averaged around 10p/kWh since then.
When heating operators renew their commercial gas contracts, they are seeing massive increases, which are more often than not passed straight on to customers in full.
Consumers and landlords operating heat networks are already reporting examples of price rises of up to 700 per cent - the equivalent of the price of a pint of milk rising from 60p to £4.80.
The vast majority of social housing tenants affected by the increases are already facing increased hardship as they live on limited incomes (low wages and benefits like Universal Credit), with no real prospect of increasing their household wealth or being able to change their energy supplier.
The Director of Heat Trust, Stephen Knight, has written to Kwasi Kwarteng, Secretary of State at BEIS, to request that 500,000 households are not overlooked as the Government looks at ways of easing the financial pressure on families and has been promised a meeting with the Secretary of State this month.
Heat Trust is calling for Government intervention to include:
- Ensuring heat network operators and their consumers receive Government support to ensure that their bills rise no faster than those of domestic gas customers;
- Bringing forward its plans to regulate the heat network market via Ofgem which were confirmed in December last year; and
- Bringing forward plans to help heat networks improve their efficiency to reduce heat wastage.
Stephen Knight, Director of Heat Trust, said: “The Government is committed to making heat networks a key part of its energy policy, and must not leave families living on these schemes behind.
“Heat networks have the potential to offer low-cost, low-carbon heat, but without intervention, hundreds of thousands of families are facing horrendous and unaffordable heating bills.”
Heat network operators are also keenly awaiting news of the Government’s Heat Network Efficiency Scheme (HNES) aimed at improving the performance of communal heating projects.
The HNES Demonstrator £4.175 million grant scheme has supported a number of communal networks to improve their performance, but the full scheme is not due to be launched until spring 2023 and Heat Trust wants to see this scheme brought forward and expanded to cut bills by reducing heat wastage.
Additionally Heat Trust is calling for changes to the Landlord and Tenant Act rules which make it difficult for landlords to buy gas more than 12 months in advance, making them more vulnerable to price fluctuations.
If they could buy gas (or other energy sources) for longer periods of time, it might protect consumers from price volatility in the energy markets.
Given the lukewarm reaction to the Government’s energy security strategy and the heavy reliance it placed on new nuclear reactors for providing more of the nation’s energy in the future, it is hoped that Ministers will respond favourably to at least some of the Heat Trust’s requests.
This should give at least short-term relief from the cost of living pressures faced by tenants in private rented and social housing.
Other parts of the energy security strategy focus on major infrastructure projects like wind farms, further exploration for oil and gas in the North Sea and even looking again at fracking.
While we await a plan to retrofit and upgrade the existing insulation to the country’s housing stock, making our current energy supplies more efficient and affordable appears a reasonable ambition and one which could benefit a huge proportion of the population.