Heat network regulation is coming, but that’s just the start

The Government and Ofgem recently made key decisions about what consumers can expect when regulation goes live on 27 January. As the statutory consumer advocate for heat networks, we’ve looked closely at what the decision means, and where consumers are still at risk.

In May, we identified key protection gaps that regulation needed to close. We never expected all of them to be fixed on day one, but the government and Ofgem’s recent documents allow us to see where progress is being made — and where more work is needed.

There’s lots to feel positive about. New rules on billing and complaints, pricing, and protections around disconnection are a crucial step towards bringing standards in line with the main gas and electricity sector. But there are some key gaps.

Here’s 3 areas where we think efforts should be more focused:

1. Tackling high prices

In recent years, prices for some heat networks have spiralled. While average household energy bills jumped 54% in April 2022 and a further 27% in October 2022, some heat network users we’ve spoken to have faced increases of up to 450%. Heat network bills can be complicated, and vary from network to network. There can be good reasons for this, but it also means the prices end users pay can vary widely.

There’s no quick fix. Bringing prices down in the long term means tackling big problems facing existing heat networks. Some older heat networks are inefficient, and it will cost a lot to bring them up to scratch — a challenge that new technical standards aim to tackle. Some heat network operators tell us they also face problems accessing cheap contracts for the fuel they need — especially in the housing sector where there are lots of rules around procurement.

Ofgem is planning some important protections: an overall requirement for fair pricing, banning providers from passing fines or redress costs onto consumers, and publishing pricing data to allow comparisons. These are positive steps, but they don’t go far enough. We need active benchmarking of procurement and operating expenses, clear rules on cost allocation, and urgent attention to bundled charges that obscure true costs.

Investigations into unfair pricing are not planned until 2027. That’s too late. Ofgem should allow for exceptional investigations where there’s evidence of extreme bad practice before then.

2. Strengthening disconnection and prepayment protections

Rightly, disconnection for debt in the gas and electricity market is almost non-existent. Strong rules combined with reputational pressure and voluntary commitments mean that in practice suppliers simply don’t cut households off — although prepay self-disconnection is much more common.

This isn’t the case for heat networks. We’ve seen plenty of evidence of disconnection, even though heat is an essential service. That’s why we welcome new protections: a ban on winter disconnections for vulnerable households, a year-round ban for people with medical needs, and new limits on force-fitting prepayment meters from 2026.

But with thousands of small heat network providers operating as local monopolies, reputational pressure won’t work in the same way as it does in the wider gas and electricity market. Small networks in particular may also struggle to manage the cost of debt without it significantly driving up prices for others on the network.

We were hoping that the government and Ofgem would commit to going further to protect heat network consumers from day one. As it stands, vulnerable consumers could remain at risk of disconnection outside of winter months, and are less likely to be identified as vulnerable. We urge Ofgem to closely monitor disconnections — and be ready to intervene if needed.

3. Ending the two-tier system for people who pay for heat alongside their housing

We’re most concerned about the protection gap for people whose heat charges are bundled with rent or service charges, often social tenants — who make up an estimated third of heat network consumers.

At best, bundling makes costs harder to understand. At worst, it creates unacceptable risks. Falling behind on heating costs could lead to eviction — something that would never happen to people who pay their energy supplier directly. This practice should be banned.

Bundled consumers could also be excluded from key protections. The new 12-month back-billing limit doesn’t apply, meaning landlords can pursue charges up to 18 months old — or longer if their supplier bills them late. They’re also left out of price safeguards, with Ofgem warning that bundled payments make costs impossible to benchmark or compare.

Fixing this won’t be simple. It requires coordination across at least 2 government departments — the departments responsible for energy (DESNZ) and housing (MHCLG) — as well as the regulator. But without it, a third of consumers will remain stuck in a system with worse standards and higher risks if they fall behind on their bills.

Focus on closing the worst protection gaps

Regulation marks a huge step forward — new rules for billing, complaints, and disconnections mean that heat network consumers are closer to receiving the same level of protection as mains gas and electricity consumers.

But unless key gaps are closed, protection could be patchy and unfair. High prices, weak disconnection rules, and the two-tier system for bundled consumers all risk undermining progress.

There’s a great deal that needs to happen from next January and beyond, but closing the protection gaps in these 3 areas will be key. Heat networks can and should deliver affordable, reliable heat — but regulation will only succeed if protections are strong, consistent and universal.