The Heat Network Regulations

Landlords and other entities who supply heat to tenants via district or communal heating systems are required to comply with the Heat Network (Metering and Billing) Regulations 2014 by the end of this year, or face criminal penalties.

A recent change in legislation means that all supplies of heat via district or communal heating systems are now subject to the statutory obligations under the Regulations 2014, with failure to comply constituting a criminal offence. The Regulations will increase regulation of a growing market and provide greater consumer protection.

Who is caught?

‘Heat supplier’ captures a broad range of entities i.e. any entity that has a contractual arrangement with a customer for the supply of heat in return for payment. There need not be explicit mention of the supply of heat in a contract, merely the counterparty’s reasonable expectation of a supply of heat as part of the deal would suffice.

Typical arrangements under which an entity is a heat supplier include where it is:

• A landlord or property manager of a multi-tenanted commercial development (e.g. shopping centre) where hot water is provided to each unit
• A landlord of a block of residential flats where tenants have hot water and radiators
• A group company acting as landlord and other group companies are tenants in the same building (e.g. head office) and each has its own supply of hot water and heating
• An owner of an industrial site where heat is supplied to an adjoining plant
• ESCO and enters into multiple customer agreements for the supply of heat at a site

The onus is on that entity responsible for supply to prove to the regulator – the National Measurement and Regulation Office (‘NMRO’) – that it is not a heat supplier.

What is heat?

Heat is steam, hot water (whether e.g. distributed via taps or radiators) and chilled liquids for the use of space or process heating, cooling or hot water. It covers cooling supplied over a network as well as heat. It does not include hot air for space heating from air conditioning systems or purely ducted air.

District or communal heat network?

A district heat network distributes heat from a single source to multiple buildings with one or more customer. A communal heat network distributes heat from a single source to only one building but with two or more customers.

The obligations

• 18 December 2014 – Regulations came into force. From this date building-level heat meters must be installed in existing multi-occupancy buildings served by a district heating network.
• From 31 December 2014 – where a meter has been installed to which the Regulations apply, the heat supplier must provide to the customer accurate billing information (where technically possible and economically justified). What information is required to be provided to individual customers is not clear and is likely to impose major costs on the supplier.
• 30 April 2015 – until the Regulations were amended recently there was an obligation on heat suppliers to notify the regulator of all regulated heat networks by this date. The Regulations have been amended to move this deadline to 31 December 2015.
• 31 December 2015 – new deadline by which heat suppliers are required to have notified the regulator of all regulated heat networks.
• 31 December 2016 – cost effectiveness and technical feasibility assessments must have been done for customer-specific metering/heat cost allocators in multi-apartment buildings, and installation must have taken place where viable.¹

What next?

The Regulations will impose burdensome and costly obligations on a broad spectrum of entities that are not typically considered to be heat suppliers, and who would not normally expect to have in-depth knowledge of heat supply arrangements.

The duty to install building-level meters in multi-occupancy buildings served by a district heating network and to provide bills and billing information to customers is already live and many companies will have been unaware of this duty to date.

The next key obligation is to notify the NMRO by the end of this year of all heat networks; this will require all potentially obligated entities to undertake before the end of December an assessment of all heat supply arrangements in which they have an involvement to check whether or not that supply triggers obligations on the entity.

The next phase of work is to determine whether it is technically and financially feasible to install customer-specific meters in multi-occupancy buildings; although the feasibility derogation is helpful if it can be demonstrated, calculating feasibility is another costly and time-consuming process.

The priority is for all potentially obligated entities to establish whether they are indeed obligated under the Regulations and to put in place a plan to demonstrate compliance with the Regulations. The NMRO has indicated a supportive approach and although entities should take advantage of this, it would be prudent to be able to demonstrate to the NMRO and stakeholders that a robust plan of action to ensure compliance is in place.

For non-compliances the regulator has the option of either levying civil sanctions or pursuing a criminal prosecution, which comes with an unlimited fine (or capped at Level 5 in Scotland). The regulator’s position is that it will adopt a supportive rather than sanctioning approach unless deliberate breaches of the Regulations are identified.

The Regulations together with the establishment in March of the Heat Trust (the new DECC-backed heat customer protection scheme) and the Code of Practice for Heat Networks, developed in partnership between the Association for Decentralised Energy (ADE) and Chartered Institute of Building Services Engineers (CIBSE), are the foundations of a new regulatory regime for this previously unregulated market.

¹ As of 14 July 2015, the requirement to install heat meters to measure final consumption of heat from a heat network in buildings occupied by one final customer will not be enforced by the NMRO. This is pending finalisation of guidance by the European Commission on the application of cost effectiveness tests, which will directly affect DECC’s cost effectiveness tool.