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Half a million households trapped in unregulated heat networks as energy prices soar

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Written by: Emma Lunn
25/02/2022
Soaring bills are worrying enough for households protected by the energy price cap. But more than half a million households are exposed to unrestricted prices and unable to switch energy supplier.

These customers get their energy via ‘district heating networks’ – one of the key technologies in the government’s strategy to achieve net-zero carbon by 2050.

With a district heating network, instead of having a boiler in each property, heating and hot water comes from a communal network. Energy is released as heat from a range of energy sources and delivered to customers through a system of highly insulated pipes.

Usage in each connected property is metered – meaning, in theory at least, you pay for the heating and hot water you use.

This might sound great, but there’s one big issue with this type of heating set-up: the district heating network chooses the energy supplier and end users are stuck with it. The rest of your electricity is billed separately so you can choose your supplier like normal.

According to the Energy Saving Trust, there are more than 17,000 heat networks in place in the UK, and nearly half a million connections to them, most of which are domestic customers.

‘We are powerless’

While the government is mega-keen on heat networks – ramping up the current 3% supply rate to a 20% target by 2050 – householders connected to them are less enthused.

Many complain their district heat network is charging much more than typical rates for heating and hot water, but there’s nothing they can do. Because the heat network is viewed as a commercial energy customer none of the usual consumer protections, such as the energy price cap, apply. Nor can consumers switch to a different supplier.

One of the biggest district heat networks is run by East London Energy (ELE). The company is contracted to provide heating and hot water to all the homes in the E20 postcode, which mostly comprises of East Village in the Olympic Park in Stratford, East London.

It also includes the nearby Chobham Manor development where James Creedy bought a three-bedroom flat off-plan in 2014 and moved in in 2016.

He says: “They told us our bills would be in line with current prices but the bills are ridiculous and we’re being overcharged. ELE serves the whole E20 postcode and the customer service is terrible.

“We have underfloor heating which comes on when the temperature drops to 20 degrees. We currently pay about £120 a month for heating and hot water, and even in the summer, when it’s just hot water, the bill is £60 a month.

“We are powerless and can’t go to another supplier. What we pay is not in line with market rates and we are penalised a lot by ELE who are trying to recoup their initial investment in the heating system.”

Creedy isn’t alone in feeling he is being overcharged by ELE. The company has a one-star rating on Trust Pilot with several customers complaining about the high standing charge of £30 a month for heating and hot water – payable even if they don’t use the utilities while away on holiday.

Trust Pilot reviews include comments such as “I feel so appalled by the monopoly this company has been granted over residents of East London Village”, “Complete rip off, prices are sky high and service is non-existent”, and “The company is impossible to deal with.”

YourMoney.com contacted ELE but it failed to respond to our media requests.

There are arguably worse problems elsewhere. An investigation by Inside Housing last year found some shared owners with housing association L&Q in Barking were left without hot water for seven weeks due to issues with their heat network.

Unregulated industry

District heat networks aren’t regulated by industry watchdog Ofgem yet – but there are plans for this to change in the future, although no date has been set by the government.

An Ofgem spokesperson said: “We do not currently regulate heat networks. However, in December 2021, the government announced Ofgem will be the regulator for heat networks when the legislation is implemented. Ofgem will get specific powers to investigate prices charged for heat network customers, which will allow Ofgem to determine whether the price a heat network is charging customers is disproportionate and take action where appropriate.”

At the moment, heat networks can voluntarily sign up to Heat Trust which is an independent consumer protection scheme, but only about 10% of networks have joined.

Heat Trust says those with communal or district heating systems are set to be among the worst affected by the soaring cost of gas – with residents facing the prospect of being unable to afford to heat their homes.

Commercial gas saw a 1,000% price increase last year, rising from 1.5p/kWh to 15p per unit before Christmas.

The director of Heat Trust, Stephen Knight, has written to Kwasi Kwarteng, secretary of state at BEIS, to request that 500,000 households are not overlooked as the government looks to ease the financial pressure on families.

Knight says: “The government is committed to making heat networks a key part of its energy policy, and must not leave families living on these schemes behind.

“Heat networks have the potential to offer low-cost, low-carbon heat, but without intervention hundreds of thousands of families are facing horrendous and unaffordable heating bills this winter.

“Gas price increases such as those experienced at the end of 2021 are simply not sustainable for heat network customers. They are driving up household bills in unprecedented ways – many people will have to choose between heat and food.”

District heat network expansion

Although they might sound like a new innovation, district heat networks have been around for decades. The UK’s first district heating scheme was built in Pimlico in the 1950s to funnel waste heat from Battersea Power Station to thousands of nearby homes and businesses.

Today, there are schemes in various areas in the UK including London, Nottingham, Sheffied, the Shetlands and Southampton. Heat networks have been installed by local authorities, housing associations, social landlords and private developers.

Some are public-private partnerships such as Energetik, which is owned by Enfield Council and partners with private sector providers to supply heat and hot water to homes and businesses in the borough. The company claims it doesn’t charge a premium for low carbon heating, with charges “stable and transparent”.

Some of the schemes are expanding. For example, Leeds City Council has approved plans to invest £7.2m in extending the city’s district heating network into five additional areas of the city.

With more district heat networks in the pipeline, and the price of gas likely to soar further due to the Ukraine conflict, households connected to heat networks will undoubtedly be calling for improved regulation of the market, better service levels and fair pricing.

Until these things happen, keep this in mind if you’re thinking of moving into a property connected to a heat network.

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