More heat than light

If the Government is ever to meet its legally-binding target for 12 per cent of the UK’s heat to come from low-carbon or renewable sources, district heating will play an integral role. Yet district heating currently represents a minuscule fraction of the UK energy sector, with only 210,000 homes and 1,700 businesses currently connected. This stands in stark contrast to other countries like Sweden, Denmark, Germany and South Korea where a far higher proportion of people receive their heat via such networks.

If operated effectively, there is no doubt district heating schemes can be more efficient, lower cost and emit less carbon dioxide than gas or other alternative heating models. However, there is a real risk that the environmental benefits of district heating are being obscured by a very real perception among consumers that they do not offer a fair deal.

At least six district heating schemes currently operate in my constituency of Greenwich and Woolwich at New Capital Quay, The Movement, Greenwich Square in East Greenwich, Greenwich Millennium Village (GMV) on the Peninsula, Woolwich Central on Love Lane and Royal Arsenal Riverside in Woolwich. A fifth is to follow at Enderby Wharf in East Greenwich. Over the past five months I have amassed a bulky file of correspondence from constituents who are served by these networks and who believe that they are being unfairly charged and that there is a lack of transparency about what is covered in their bills.

The UK district heating market is still in its infancy and so low levels of consumer confidence might be expected. What exacerbates the low levels of consumer confidence in this area is the absence of consumer choice. If district heating customers enjoyed the same freedom of choice that others on the grid do they could respond to concerns over pricing and transparency by switching supplier. Instead, they are locked to monopolies from which there is no escape.

The current state of affairs cries out for effective statutory regulation. The most recent consultation on district heating regulation occurred in 2014 and little appears to have moved on since the Government’s initial decision not to regulate the market on the basis that it would drive investment in the sector by avoiding red tape.

District heating suppliers have sought to build trust and confidence in the market by establishing the Heat Trust, an initiative sponsored by the Association for Decentralised Energy (ADE). Given the levels of consumer mistrust that now exist this industry-led approach can only ever be an interim solution. First, the voluntary nature of the Trust does not guarantee universal coverage for all district heating consumers. Second, it will do little to reassure customers that the market operates on the basis of fair and consistent pricing, particularly when one considers that the Heat Trust’s pricing formula is benchmarked to gas networks that utilise very different technologies. Third, it is not an adequate substitute for the redress provided by a sector Ombudsman.

If we are to effectively protect district heat customers and build confidence in a market where future success is crucial to the UK meeting its legally binding targets on low-carbon heat, the Government needs to look seriously at introducing effective regulation of the industry, and quickly.