Energy is an increasingly live issue for landlords: think electricity self-generation and “demand-side response”, electric vehicle charging points, energy service companies, energy performance certificates (EPCs) and more. Heat must also be on this list.
Why heat?
Heat is currently responsible for around one-third of our greenhouse gas emissions. To reach net zero by 2050 (or sooner) the provision of heat in buildings therefore needs to decarbonise.
Policy responses have included plans to tighten building regulations for energy efficiency and to ban fossil fuel heating in new-builds from 2025.
The government also wants to encourage low-carbon heat networks (HNs). It is currently carrying out a consultation – Heat networks: building a market framework – seeking views on proposals for HN regulation, with a closing date of 1 May for responses.
What are heat networks?
HNs distribute heat (or cooling) in the form of steam and liquids from central sources to multiple buildings/sites (district heating) or to multiple customers in the same building (communal heating). To date, they have played a smaller part in the British property and energy markets than, for example, in the Netherlands, Germany and Nordic countries.
The hoped-for expansion of HNs poses a number of questions for policy makers. How can networks be encouraged by dealing with known issues such as “connection risk”? Should consumers be protected and heat providers be regulated, as is the case with the established gas and electricity utilities? The answers have important implications for landlords.
What is there already?
The Heat Networks (Metering and Billing Regulations) 2014 contain requirements in respect to metering of consumption and billing of consumers, as the name suggests. They also include a requirement to register networks with the Office for Product Safety and Standards. Registrations must be updated every four years. Existing networks registered by the original 31 December 2015 deadline should have been renewed by now.
A separate government consultation recently closed on amending the metering and billing regulations’ technical feasibility and cost-effectiveness tests (Heat Network (Metering and Billing) Regulations 2014: proposed amendments). These tests are applied to decisions (which landlords may be responsible for making) on whether to install final consumption meters and whether to bill based on consumption.
Heat Trust runs a voluntary scheme for HN providers. It sets consumer service standards and provides for resolution of complaints via the energy ombudsman. The government’s latest consultation recommends Heat Trust as a good resource for those thinking about consumer protection and wanting to be ready for the kind of consumer-focused regulation that is now proposed.
The ADE – CIBSE CP1 Code of Practice (a joint project between the Association for Decentralised Energy and Chartered Institution of Building Services Engineers) provides voluntary minimum standards relating to the design, installation and technical operation of HNs.
Funding and support for potential HNs is available from the government’s Heat Networks Investment Project (£320m of funding) and the Heat Network Delivery Unit. The government has also published a standardised due diligence set for potential HN investment.
What’s coming?
The government is proposing to create a new regulatory regime for HNs. The current consultation document is a fairly easy read and the details will be important to landlords.
The consultation is light on concrete steps to encourage HN development. It discusses a regulated asset base option – ie networks are licensed and allowed to charge a regulated price to users in return for providing the infrastructure, as happens with water, gas and electricity networks. However, this is ruled out for now at least. Similarly, government-sponsored demand assurance schemes are ruled out. Instead, the consultation points to the measures already in place (see section above) and to the greater regulatory certainty that will come from the regulatory proposals for HNs that are built. The consultation also looks to local planning policies and decisions to encourage the development of HNs, for example through zoning.
Landlords should act now
If you are not already doing so, now is the time to start thinking about heat and, in particular HNs. Anyone who has, or is planning an HN needs to ask:
- Are you complying with existing registration, metering and billing requirements?
- Do you want to comment on the proposed new regulatory regime?
- How are you going to ensure you are ready for the regime that will emerge?
Read and respond to the consultation here
Ed Weightman is a senior associate at Penningtons Manches Cooper
