Ofgem has responded to the Scottish government’s Consultation on Heat and Energy Efficiency Strategies, and Regulation of District Heating with suggestions on how to regulate the district heat sector.
In the letter, Martin Crouch, Ofgem’s senior partner for improving regulation, said: “Any regulatory framework for heat networks needs to deliver good outcomes for consumers without being overly burdensome for the industry. As the market for heat networks develops, any regulation should not inhibit innovation or lock development in to one specific model. Clear principles for expected conduct by suppliers and standards of service may be helpful in this regard.”
“The monopolistic nature of heat networks may lead to poor outcomes with regards to pricing. Customers may be locked in to long-term contracts with no ability to switch supplier and often insufficient information to understand the basis on which they are being charged,” he continued, suggesting that one option might be that customers connected to heat networks are charged no more than if they were using natural gas for heating.
On customer service, Crouch said: “Energy is an essential service and customers on heat networks should quite rightly expect similar levels of protection and customer service as we see for other utilities.” He said that, while voluntary customer service standards have been developed by the Heat Trust, “formal regulation could have a wider reach and stronger tools to ensure compliance” and that “a regulatory backstop might also be considered to address systematic failures, with special administration for insolvency”.
Commenting on the Scottish government’s proposals to reduce investment risk for district heat developers, Crouch said: “We understand that the purpose of granting concessions to licence holders would be to reduce risk and the cost of capital in a similar way that we see for other utilities. However, at this stage we feel that further exploration of potential regulatory models is needed to arrive at a better common understanding of the appropriate allocation of risk. It is not immediately clear that both licences and concessions would be needed as part of any regulatory framework.”
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