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Navigating the changing tides of regulations

24 June 2024

GERETH COPLAND delves into the evolving landscape of heat network regulations, exploring how the sector is rapidly shifting to embrace low-carbon heating technologies amid government initiatives to achieve net zero emissions by 2050.

The heat network sector is changing so rapidly that it can be hard to keep up. Viewed by government as a vital component of the UK’s strategy to reach net zero by 2050, this potentially efficient, low-carbon heating technology is fast becoming the norm in modern urban developments and is now spreading to rural areas, too. So, if you haven’t encountered a heat network yet, the chances are you will do soon. 

As well as growing rapidly, the sector is maturing. This is evidenced by the way it’s evolving to embrace waste heat sources and emerging renewable technologies such as heat pumps. The trend is particularly prevalent in new build-to-rent housing developments where the running costs and environmental impacts of different heating systems are a key concern right from the planning stages. A case in point, is that of the 879 heat networks currently in planning stages*, 75% specify an air, ground or water source heat pump as its energy type. 

This all means that many facilities managers are having to get on top of several new technologies at once. The operation and management of both heat pumps and heat networks differs significantly from that of more traditional, individual heating systems running on gas-powered boilers, so there’s a lot to get your head around. And this is important because efficiency can decline sharply, and costs spiral if equipment is not properly optimised and maintained.

New regime

Another sign of a maturing market is proper regulatory oversight. To date, heat network operators have been less stringently controlled than the rest of the energy sector, leaving consumers unprotected in significant areas. This became headline news in 2022 when energy tariffs soared to record levels and domestic heat networks were initially excluded from price-capping measures, leaving some households facing hikes of as much as 700%. Many blamed their heat network suppliers, who in reality had little control over the situation. 

Lessons have been learned, and we can expect a very different administrative environment when Ofgem takes over as the official regulator for the heat network sector next year. An array of new rules is on the horizon, backed up by stronger enforcement measures, all primarily designed to protect end users. 

The time to act

Although the details of the incoming legislation are still being finalised, we already have a pretty good idea of what will be covered, and heat network suppliers should not delay in preparing for the changes. 

As well as consumer protection, the regulations that are currently proposed encompass technical standards, carbon emissions and step-in arrangements for when contingency plans are needed. Heat network zoning - designating geographic areas where heat networks are expected to provide the lowest cost solution for decarbonising heat – is also being rolled out nationally.

The new consumer protection regulationsshould be fully phased in by 2026 with the other policy areas to follow shortly after, but Ofgem will begin collecting operational and financial data from registered heat suppliers and rolling out the first tranche of customer protection measures from next year. So, time is of the essence to ensure good practice principles are embedded now before they’re enforced later through penalties. 

Consumer safeguards

In broad-brush terms, areas that Ofgem will be seeking to control more closely include energy pricing, quality of service, metering, billing & payment information that must be provided to consumers pre-contract and during residency, and support for people who struggle to pay and other types of vulnerable households. 

In all areas, Guaranteed Standards of Performance (GSoPs) will be applied, and heat network suppliers and operators  will be expected to “behave fairly, honestly, transparently, appropriately, and professionally”. Information provided to customers must be “in plain language, complete, not misleading, and sufficient for informed choices”. Transparent, benchmarked charging breakdowns will be required, including asset depreciation, repairs, administrative costs and variable fuel and production costs.

What this essentially means in practice is that there will be no longer be any leeway or anywhere to hide for system or managerial inefficiencies – every penny charged must be effectively and transparently used to ensure best value for bill payers. Residents will have access to robust support from the Energy Ombudsman and advocacy bodies, such as Citizens Advice, to ensure failings are swiftly rectified and any compensation due is paid in full.

Optimising assets

The single most important thing facilities managers can do to prepare for the new regime is to ensure that their heat network is working really well and properly maintained. If it’s not regularly serviced, monitored and optimised, inefficiencies will mean costly components such as water pumps and boilers will be forced to work harder. This can result in shorter repair and replacement cycles, impaired comfort for users, breakdowns, or even potential safety issues.

Implementing a thorough maintenance regimen, ideally via a planned preventative maintenance (PPM) contract, is crucial. This should cover every aspect of the system, including meters and heat interface units (HIUs). 

Heat network maintenance differs significantly from that of ordinary gas boilers. With multiple properties all connected to the same system, changes to one asset can impact the entire network. It’s important to ensure that potential maintenance service providers can explain this in detail and outline clear strategies for optimising efficiency and minimising heat loss. Check, too, that they have a sound working knowledge of CIBSE's CP1 for Heat Networks: Code of Practice 2020.

Data monitoring

Monitoring is the bedrock of efficiency in any heating system, but with heat networks it’s even more important because of the interconnectedness of all the component parts.

To achieve a heat network’s full potential energy savings, you must continuously and meticulously measure and monitor its performance, correcting issues as soon as they occur. Having a clear understanding of what optimum functioning looks like means faults can be spotted quickly. It also provides essential insights into occupancy rates and peak usage periods, enabling accurate tailoring of heat supply to minimise network losses. 

With new emerging technologies, such as cloud-based dashboards with real-time data, consistent monitoring is now far easier than it once was, and the return on investment is rapid. At Insite, we use our own in-house cloud-based client portal, VANTAGE. This presents essential real-time performance data on a colour-coded dashboard, making it easy to spot issues at a glance.

Metering matters

Effective metering is another crucial element to ensuring your organisation can meet its new regulatory obligations. Smart meters must be used wherever possible, and all meters should be replaced when they near the end of their expected life. If they fail, bills will be inaccurate, leading to residents being over- or undercharged, and making it difficult to manage heat network financials. 

Meters can also help to identify any abnormal consumption levels that could be an indication of a system fault. And they can provide households with real-time energy usage data in line with transparency requirements. 

Information and communication

There are other advantages to giving residents access to their consumption data, besides meeting the incoming obligations for billing transparency and frequency, and smart metering. When people can see in real-time how much heat and power they’re consuming, for instance, via a pay-as-you-go (PAYG) metering system combined with a web-app on their mobile phone, their energy use drops by around 24% on average. It also makes it much easier to coordinate household budgets, so energy debt - a major contributor to the overall cost of heat networks - is around 13 times lower than in similar properties that are credit billed. Investing in this kind of technology at the present time is therefore well worth thinking about.  

Now is also a good time to overhaul your other resident-communication channels to see if there is any room for improvement. Co-operation and communication will be vital to help ensure your residents understand how the new regulations will affect them and what their responsibilities are. In some cases, they might not actually know they’re on a heat network, or what this means. Or they may feel, because it’s a communal system, there’s nothing they can do to make a difference to their bills and emissions, which is far from true. Everything you can do to help them understand the situation will be well worth the effort. This is also a ‘good-news’ opportunity that could help to strengthen relationships – the legislative changes are designed to benefit them, after all. 

Help is out there

Reviewing or putting in place new procedures and processes always takes time, and residents need notice of any changes that affect them, as well. So, if you haven’t already begun to prepare for the new regulations, start now. 

If this feels daunting, remember that help is available. Your metering & billing and/or maintenance providers should be aware of what’s coming and willing to help you get your systems in order, reduce costs, and get the most out of your equipment. Lean on their expertise to help you plan for the road ahead.

*Source:  Barbour ABI Heat Networks Planning Database software, https://data.barbour-abi.com/smart-map/repd/beis/?type=heat_network

Gareth Copland is group operations director at Insite Energy

For more information visit insite-energy.co.uk/business