Is there a hidden affordability crisis in the heat networks sector?

Hundreds of thousands of heat networks consumers could be enduring a perfect storm of increased gas prices and a lack of protections compared to gas and electricity consumers.

Heat networks supply heat from a central source through a network of pipes, meaning homes connected to a heat network don’t have a central boiler. The Government and the energy regulator, Ofgem, are currently seeking views on their plans for consumer protections in the heat network sector.

Heat networks can be efficient ways of delivering heat, as they benefit from large scale heat generation. They can use waste heat resources and also be retrofitted to incorporate cleaner sources of heat. They’re a key part of the government’s plan to decarbonise heating. It’s been identified that they could supply as much as a fifth of heat by 2050.

But people connected to a heat network can’t shop around. This can diminish incentives for suppliers to provide a good and affordable service. On top of that, consumers have very few rights. For example, households are not protected by the price cap or from catch-up billing. And there are no requirements for heat networks to treat consumers fairly when they have payment difficulties.

What’s more, it’s people least able to bear the brunt who are most severely impacted. That’s because heat network consumers are more likely to be on a low income due to their concentration among social housing.

These factors indicate that levels of debt could be as bad, if not worse than, the broader energy sector — which is breaking unwelcome records. But no data currently exists to comprehensively understand affordability and debt for heat network consumers across the sector. Instead we’re heavily reliant on individual stories from particularly hard hit consumers.

The media has recently covered 450% price increases, £1,000s worth of retrospective billing, bills 60% higher than the Ofgem price cap and threats of eviction when consumers aren’t able to pay. Some communities on heat networks have set up campaigns to highlight the issues they face.

At Citizens Advice, we are helping people with similarly shocking stories.

Exceptionally high bills

There is some evidence of a wide variation in the efficiency that heat networks are achieving. This can lead to significant losses of heat, which consumers have to pay for. And, many properties aren’t metered, meaning that consumers can’t save money by reducing usage. Heat networks that use gas are exposed to global fluctuations in gas prices as they’re not protected by the energy price cap and they can’t shop around. This can result in catastrophic bill increases.

This is what happened to Yawo*, who is a pensioner on a low income. She lives on her own in a Housing Association property in the North West. She reached out for help from her local Citizens Advice because she was struggling to top up her prepayment meter for her heating and hot water. She regularly self-disconnects and has to rely on financial support from a family member. After investigation from the Adviser, it was discovered that the cost for her heating and hot water was more than 3 times the level allowed for domestic gas supply by the price cap.

Lack of transparent billing based on usage

The costs of being connected to a heat network are not always transparent and accurate, since there are no requirements to supply consumers with regular bills based on usage. This can make it impossible to budget accurately and can lead to severe financial hardship for people like Luca.

At the time of seeking advice, Luca* lived in east London with his partner. He was in severe distress as a result of receiving large bills for his communal heating. His first bill was in spring 2023, and he was charged almost £2,000 for a 20 month period. This rose to £4,000 when he was issued a second bill that winter covering the past 3 years. The management company had not provided any information about the unit cost or estimated usage. Luca had no way of checking the accuracy of the bills and therefore felt that he had limited recourse to support. He was also concerned about how he would be able to pay such significant sums. In the broader energy market, Luca would have been protected by Ofgem’s back billing rules which state that energy suppliers cannot charge customers for energy used more than 12 months ago if the supplier is at fault.

Harmful treatment of consumers in payment difficulty

Unlike the regulated energy sector, there are no requirements to treat consumers in payment difficulty fairly, i.e. offering repayment plans based on affordability. Instead operators can demand unreasonable lump sum payments or resort rapidly to forms of debt collection like prepay meters, which can put some consumers at risk, or seek to disconnect them. Often, a consumer’s heat network supplier is also their landlord, which means that consumers can sometimes be threatened with eviction when they fall behind on heating and hot water charges.

James* recently sought help from his local Citizens Advice in the South West because he had no access to heating and hot water. James had been disconnected after falling into debt when his heating and hot water bill increased to over £4,500 per year. He didn’t have a heat meter, so James had no option to reduce his bill by reducing his usage. The disconnection was causing significant distress because it meant that he was unable to bathe or keep his young daughter warm. Before coming to CItizens Advice for help, he had raised a complaint with the Energy Ombudsman, but they weren’t able to help because it wasn’t within their remit.

A combination of regulations and voluntary agreements — as well as the option of using prepay meters — mean disconnection is incredibly rare, but there is no equivalent protection for people connected to a heat network.

What next?

While we can offer help like support to manage debts and maximise income, regulation offers a unique opportunity to prevent these problems from arising in the first place and make sure that there is better support available earlier on. The process of introducing regulation will be complex, but Ofgem and the government have signalled a step change in standards for all consumers, including requirements for clear billing, debt protections and treating people fairly.

But this won’t bring down prices right now for people like Yawo, Luca or James. The absence of comprehensive good-quality data makes it impossible for us to know the scale of affordability problems, but anecdotal evidence sketches out a hidden affordability crisis for heat network consumers. It’s critical that this is better understood and consumers are protected. In the coming months, we’ll be delivering new research on affordability and speaking to Government, Ofgem and industry to advocate for solutions.

* Names have been changed to preserve anonymity