Energy crisis: fuel poverty and communal and district heating systems

Housing associations are doing all they can to help mitigate the impact of energy price rises on tenants and leaseholders. This page sets out the National Housing Federation’s position on how the energy crisis affects housing associations that run heat networks and how savings are passed onto their residents. It also sets out short and long-term measures to address the impact of the energy crisis.

What is a heat network?

Heat networks, sometimes referred to as ‘district’ or ‘communal’ heating, are a way of heating blocks of flats or groups of homes. Heat networks vary in size, and they can serve as few as two homes, all the way through to entire housing estates. They are particularly attractive in high-density built-up areas and can deliver cost effective, low carbon heat. In social housing, they are often used in supported and sheltered housing with shared facilities, as well as in blocks of flats. If you are procuring energy commercially, and distributing this to residents via a central boiler, then you are running a heat network. 

Heat networks work by distributing energy that is generated in a central location by a larger boiler to individual homes through a series of insulated pipes. There are many possible technologies that can provide the input to a heat network including power stations, energy from waste (EfW) facilities, industrial processes, biomass and biogas fuelled boilers and Combined Heat and Power (CHP) plants, gas-fired CHP units, fuel cells, heat pumps, geothermal sources, electric boilers and solar thermal arrays.  

There are two types of heat network: 

• A district heat network: two or more buildings share a heat source with at least two end users. 
• A communal heat network: a single building with two or more end users sharing the heat source. 

There are over 14,000 heat networks in the UK, serving around 500,000 households. Based on the English Housing Survey, we estimate that approximately 150,000 housing association residents in England have their heating and hot water delivered to their home via heat networks.

Heat networks can reduce the greenhouse gas emissions of heating and the costs of heating for end users. The government is exploring ways to expand the use of heat networks in the future and shift them away from using fossil fuels to help the UK achieve its target of net zero carbon emissions by 2050. 

How are heat networks regulated?

Heat Network (Metering and Billing) Regulations

In 2014, BEIS published the Heat Network (Metering and Billing) Regulations (HNMBR) as part of the UK’s response to the EU Energy Efficiency Directive. The regulations aim to drive energy efficiency and transparency within heat networks to ensure that customers can monitor their energy usage and are provided with competitively priced energy. If you charge any of your residents for the supply of heating, cooling or hot water through a district or communal heat network, you will need to comply with these regulations. 

Requirements

Part 1 – notification requirements 

Heat network operators are required to complete a notification of data from all qualifying heat networks to BEIS. 

A heat network qualifies if:

• It provides a shared source of heat for multiple users.
• The heat transfer medium is water, steam or chilled liquids.
• The heat is used for heating, cooling hot water or processes.
• The heat is sold to final customers by heat suppliers. 

The deadline for part one of the regulations was 31 December 2015 and the process must be repeated every four years from the data of the original submission. 

Part 2 – viability assessment requirements 

The second part of the HNMBR came into effect in 2020 and requires heat networks operators to determine if they must install heat meters or heat cost allocators into their buildings. 

To define which networks will be required to install, BEIS has introduced three building classes: 

• Viable: those who must install heat meters. 
• Open: those who must complete a viability exercise to determine if they are required to install meters or heat cost allocators. 
• Exempt: no action required.  

If buildings fall into the open class, the operators are required to complete a tool to assess whether it is cost-effective to install heat metering devices. The deadline to determine building classes and to complete the cost-effectiveness tool was the 27 November 2021 and the deadline for installation of heat devices is 1 September 2022. 

The government has published further guidance on how to comply.

Future regulations 

Unlike gas and electricity markets, heat networks do not currently have an official regulator. This means that while the supply of gas to a heat network is regulated, the supply of heat from the network to homes is not. Most heat network customers are not protected by the energy price cap since the supply of gas to heat networks is commonly classed as ‘non-domestic’.

Although on average heat networks deliver a comparable service to individual heating systems, some consumers receive significantly worse outcomes, such as high prices and frequent outages. Regulation of heat networks will help to ensure consumers get a fair price and reliable supply of heat and will facilitate market growth. 

Energy Security Bill: heat networks regulation 

The Energy Security Bill introduces a regulatory framework for heat networks and powers to enable heat network zoning in England. The measures will work together to reduce the cost of living for heat network customers by regulating prices and ensuring the sector can contribute to delivering net zero in the most cost-effective way. 

The proposals would create a statutory regulator for the heat network sector, proposed to be Ofgem, and focus on three core areas: 

• Transparency of the heat network service, including before first joining the network. 
• Fair and accurate pricing.
• Quality of service - for example expectations on outage management and customer complaints handling. 

Under the new regulations, heat network operators would need to notify the regulator of their intention to supply heat or operate a heat network in order to get authorisation. All heat networks will need to meet minimum technical standards and decarbonisation rules, which will form part of the conditions for continued authorisation. Ofgem will monitor compliance and will be given powers under the Bill to take enforcement action where heat networks are not meeting the required standards. Ofgem will also have powers to investigate and intervene to ensure consumer prices are in line with heat networks with similar characteristics, or with the prices of alternative and comparable heating systems. The BEIS Secretary of State will have powers to introduce price regulation, including a price cap. 

The government has published further guidance on the Energy Security Bill and upcoming heat networks regulation. 

We are currently engaging with the Department for Energy Security and Net Zero and Ofgem on the upcoming regulations, if you would like to be kept up to date on this engagement and would like the opportunity to feed our work on this, please get in touch with us.

The Heat Network Efficiency Scheme

Housing associations can apply to the Heat Network Efficiency Scheme to improve the efficiency of their district or communal heating systems. The key aims of the Heat Network Efficiency Scheme are to:

• Reduce carbon emissions by making heat networks more efficient.
• Improve customer experience and confidence.
• Help prepare the heat network market for sector regulation.

Find out more about the Heat Network Efficiency Scheme.

What support is there for heat network customers?

Most heat network customers are not protected by the energy price cap since the supply of gas to heat networks is commonly classed as ‘non-domestic’. This also means that heat network customers are not currently benefitting from the Energy Price Guarantee, which caps energy bills for the average household at £2,500 per year up to the end of June 2023 and £3,000 from July 2023 to April 2024.

Following campaigning from the NHF and others, the government has confirmed that heat network customers are eligible for the Energy Bills Support Scheme Alternative Funding. This will provide them with a £400 energy bill rebate. Some heat network customers who are metered will have received these payments directly from their electricity supplier. Meanwhile, other heat network customers (as well as others who do not have a direct relationship with their electricity supplier) will receive the £400 via the Energy Bills Support Scheme Alternative Funding portal, which they will need to apply to before 31 May 2023.

Heat network customers who do not have a direct relationship with their energy supplier, and are therefore not eligible for the Energy Price Guarantee, are also benefitting from the Energy Bill Relief Scheme up to the end of March 2023. This is the energy bill support scheme for businesses and other non-domestic customers. Heat network operators who signed their commercial energy contract since 1 December 2021 receive support through the Energy Bill Relief Scheme. They will then be required to pass on any savings to the end user. 

From April 2023, heat network customers will receive energy bill support via the Energy Bill Discount Scheme (EBDS). Domestic heat network customers on non-domestic heating contracts will benefit from a higher rate of relief than the standard Energy Bill Discount Scheme. This support will be set at a level that ensures that they do not face disproportionately higher energy bills than consumers under the Energy Price Guarantee.

Energy Prices Act 

The Energy Prices Act 2022 provides the legislative framework to deliver the government’s package of energy support, including the Energy Price Guarantee and the Energy Bill Relief Scheme.  

The Act introduces regulations setting out 'pass-through' requirements for the Energy Bill Relief Scheme to ensure that any benefits from the scheme are ‘passed through’ (passed on) to the end user. 

If your housing association is operating a heat network (or acting as an intermediary) and you are benefitting from the Energy Bill Relief Scheme then you will need to take the following steps: 

• Inform all your heat network customers how and when savings will be passed on to them. Savings must be passed on by 30 November 2022, or within 30 days of receiving the discounted prices from your energy supplier. To help with this, you will find a template letter on GOV.UK. 
• Register with the Energy Ombudsman for the redress scheme. More information will be found on the Energy Ombudsman website. Heat suppliers can also contact heatnetworks@beis.gov.uk for more information on the redress scheme. 

You can find further guidance on the Energy Bill Relief Scheme pass-through requirements for heat networks on GOV.UK, including how to inform customers and calculating the pass through. 

If you are benefitting from the Energy Bill Relief Scheme on your commercial electricity supply, used for communal areas (lighting, lifts, security doors, etc.), these savings also need to be passed on to customers. In these cases where you are acting as an intermediary, there is guidance for intermediaries. The deadline for the notification is 30 days from the benefit being provided to the intermediary. 

What can housing associations do?

• Contact your MP with evidence of the impact of rising costs on residents and your organisation. 
• Share concerns with local councils – local authority landlords are experiencing the same issues as housing associations and local authorities also run some district heating schemes used for leisure centres etc. 
• Share your story and evidence with the NHF, especially on the impact of price increases on residents. 

Help for tenants and leaseholders

All heat network customers will receive at least £400 to help with rising energy costs and additional support is available to the most vulnerable customers: 

• Cost of Living Payment: means tested benefits (£900 per person where eligible). 
• Pensioner Cost of Living Payment (£300 per person where eligible). 
• Disability Cost of Living Payment (£150). 
• The Household Support Fund (discretionary Local Authority funding). 
• Council Tax rebate (£150 per household in council tax bands A-D). 
• The Warm Homes Discount scheme (£150 per household where eligible).