Ofgem and the Department for Energy Security and Net Zero have published a consultation seeking views on the future of regulation of heat networks. The proposals set out in the consultation represent a significant development in the improvement of protections for consumers in this market.
Heat networks, also known as district heating, supply heat from a central source to consumers through a network of underground pipes carrying hot water. These networks can cover large areas such as towns or cities or can be fairly local, supplying smaller groups of buildings such as housing estates. Importantly, this avoids the need for individual boilers or electric heaters in every building. This means heat networks can play an important part in reducing emissions and decarbonising buildings, offering more efficient, environmentally friendly ways to heat homes and businesses. Where a network is run well, it can also lead to fuel savings for consumers and help to reduce fuel poverty.
At present, around 1.5% of Scotland’s heat is supplied from heat networks, but the Scottish Government has set an ambitious target to increase this to 8% by 2030, which is the equivalent of around 650,000 additional homes. The consultation on heat network regulation is therefore particularly important as it will provide better consumer protection for heat network users at this time of expansion.
The introduction of regulation, which is expected to commence from 2025, will help ensure all heat network consumers are given a comparable level of protection to customers of gas and electricity in the regulated energy sector. It will establish Ofgem as regulator for heat networks to ensure consumers can get a fair price and reliable supply of heat. Ofgem will help to facilitate market growth, ensuring heat network developers can access powers equivalent to other utilities. This will enable heat networks to be built more quickly and cost effectively. Regulation will also support the decarbonisation of the sector and energy efficiency improvements by raising technical standards and introducing carbon emissions limits on heat networks. These are important changes that will help to improve outcomes for consumers.
The consultation also sets out the role that Consumer Scotland will play in future in the new regulatory regime, becoming the consumer advocate for heat networks in Scotland.
As part of this new responsibility, Consumer Scotland will carry out research into the issues and experiences heat network users face, using this evidence to advocate for improvements on behalf of consumers. It will also mean formally representing consumers on industry and advisory groups, ensuring the consumer voice is heard at all stages of decision making.
We will continue to work collaboratively with government, Ofgem and the industry to push for improved consumer outcomes and higher standards. Consumer Scotland will also develop specific strands of work to ensure heat network consumers in vulnerable circumstances are treated fairly when the new regime goes live. And Consumer Scotland will continue to work closely with Citizens Advice, who will take on a similar role in England and Wales, to ensure parity across the UK.
In our work programme for 2023-2024, we committed to work with our partners across the consumer landscape to ensure the consumer is placed at the heart of future developments, and to maximise the benefit consumers gain from heat networks. We have already been working to do this as a member of the Heat Trust Committee, supporting and contributing to the ongoing development of the scheme, making it more effective for consumers on networks that are registered with the Heat Trust. We have also been working with Scottish Government to understand the role that Consumer Scotland can play to support heat network users in the new regulatory regime and how we can support them to achieve better outcomes for consumers as heat networks continue to grow to meet Scotland’s heat demands.
In addition to the formal role Consumer Scotland will play in the regulatory landscape, we will also respond to the consultation, setting out our views on the new regime.
This response will build on our ongoing work to support the Scottish Government, the Department for Energy Security Net Zero and Ofgem during the development of regulation to ensure better outcomes for both current and future heat network users in Scotland.