A consultation on proposed amendments to the Heat Network (Metering and Billing) Regulations proposes that final consumption heat metering devices are installed on heat networks and billing is based on consumption where it is technically feasible and cost-effective to do so.


Why does this matter?

Heating is the single biggest reason we consume energy in our society and is responsible for over a third of the UK’s greenhouse gas emissions. In 2019 the UK government set a legally binding target to achieve net zero greenhouse gas emissions from across the UK economy by 2050. To meet this target, virtually all heat in buildings will need to be decarbonised, and heat in industry will need to be reduced to close to zero carbon emissions. The Committee on Climate Change estimates that around 18% of UK heat will need to come from heat networks by 2050.

The Government already has a range of programmes and initiatives to achieve a reduction in heat demand and substantial growth in no or low-regrets low carbon heating in the shorter term, i.e. supporting the deployment of heat networks and lower carbon heating solutions.  In the longer term, it is developing a new policy framework to regulate heat. 

Where billing for heating, cooling and hot water is based on actual consumption measured by individual meters and heat cost allocators, this can encourage behaviour change and incentivise energy savings and reduce bills. If a flat rate is charged to all customers on a heat network, for example in multi-apartment or multi-purpose buildings, this can lead to low energy users subsidising those with a high energy usage. 

Metering and billing based on consumption is also expected to increase the transparency of the pricing structure and the charges for customers on heat networks, in part addressing the recommendations of the Competition and Market Authority’s Heat Network Market Study (2018).

What are heat networks and how are they regulated?

Heat networks deliver space heating, process heating, hot water and cooling from a central energy source to multiple domestic and non-domestic sites, buildings, or units. District heat networks (there are around 2,000 in the UK) supply multiple buildings or sites while communal heat networks (around 12,000 in the UK) supply a number of units in a single building.

Heat networks can reduce bills, support local regeneration and can be a cost-effective way of reducing carbon emissions from heating as they present an opportunity to exploit larger scale renewable and recovered heat sources. Many planning authorities make it a condition of any new development that a heat network is installed as we have reported previously in our article, Decentralised energy schemes – what's all the fuss about?

Heat networks tend to be monopolies in relation to the heat they provide, with customers in buildings with a heat network having little or no choice of heating provider. Despite being monopolies, at the moment they are subject to very limited regulation but this will change following a Competition and Markets Authority (CMA) investigation last year. This investigation recommended that heat networks should be regulated by statute, in a similar way to the gas and electricity networks, so there would be a statutory regulator with powers to set regulatory requirements, rules and guidance for heat network developers and operators, with monitoring and enforcement powers. We were expecting a consultation on the policy options for this market framework in the summer, but this has been put back due to Brexit and the general election.

In the meantime, the only regulations that specifically apply to heat networks are the Heat Network (Metering and Billing) Regulations 2014 (as amended) ('the Regulations'), which implement the requirements of the EU Energy Efficiency Directive. There are also voluntary standards such as the Heat Trust Scheme and the Chartered Institute of Building Services Engineers (CIBSE)/Association for Decentralised Energy (ADE) Heat Networks Code of Practice.

Amending the Heat Network (Metering and Billing) Regulations 2014

The current Regulations require all heat networks to be notified to the regulator, the Office for Product Safety and Standards (OPSS), and contain specific requirements for the installation of heat meters and billing for customers on heat networks.

Ideally, each end customer will have a heat meter, enabling fair and transparent billing based on actual consumption – like a smart meter but for heat. This can drive energy efficiency savings and cost reductions. In some cases, the regulatory requirement to install metering devices (heat meters and heat cost allocators) is subject to a ‘cost-effectiveness’ test which is prescribed in the Regulations. 

The Heat Network (Metering and Billing) Regulations 2014: proposed amendments consultation sets out proposals to amend the Regulations to ensure final consumption heat metering devices are installed on heat networks and billing is based on consumption where it is technically feasible and cost-effective to do so.

The consultation proposes to introduce three building classes:

  • The ‘Viable’ class (meters must be installed in all buildings falling within this category). These are:
    • newly constructed buildings supplied by a district heat network
    • buildings supplied by a district heat network that undergo major renovations relating to the technical services of that building
    • new-build buildings with a communal heat network
  • The ‘Exempt’ class (meters are not required). These are:
    • buildings consisting mainly of domestic units on communal or district heat networks in which heat is distributed by means of water with a normal operating temperature above 90°Celsius
    • buildings on communal or district heat networks where there is more than one entry point for the flow and return pipes of the network into each private dwelling within that building or where the entry point is not known
    • buildings, consisting mainly of non-domestic units, on communal or district heat networks in which heating is supplied by a system using means other than hot water
    • buildings, consisting mainly of non-domestic units, on communal or district heat networks in which cooling is supplied by a system using a transfer fluid other than water
  • The ‘Open’ class (meters or heat cost allocators are required if cost-effective – so they must carry out a cost-effectiveness test using a new tool):
    • a building that is already metered, when replacements are required
    • all other buildings on existing communal and district networks.

So in other words, if a building falls within the 'Viable' class, heat meters are always required and there is no need for a cost-effectiveness assessment. If a building falls within the 'Exempt' class (and the consultation assumes that 25% of buildings will), heat meters are not required. If a building falls within the 'Open' class, a cost-effectiveness assessment will need to be carried out to decide whether or not heat meters need to be installed. This will affect buildings that already have heat networks but are not currently subject to the Regulations.

BEIS are consulting further on the proposed updated methodology and associated tool for assessing the cost-effectiveness of meter installations for buildings in the ‘Open’ class. Recently they added a technical appendix with more information on how the tool will work.  The consultation proposes to make it mandatory to use the tool to carry out the cost-effectiveness assessment for buildings in the ‘Open’ class.

BEIS also propose to extend the scope of the current requirements on meter accuracy, maintenance and billing to all installed metering devices, which would include meters which were not installed under a duty of the Regulations, either before the Regulations came into force or voluntarily since then. This extension of scope is intended to ensure all customers on heat networks who have final consumption meters or heat cost allocators are protected by these provisions. The requirements would apply from the time when the amendments come into effect, however noncompliance will not be sanctioned retrospectively.

Implementation

The deadline to respond to the consultation has been extended to 9 January to take account of the general election.  BEIS aim to publish the Government Response within 12 weeks of the close of the consultation and to introduce the amended legislation as soon as parliamentary time allows.

Following the amended Regulations coming into force, there will be a six month implementation period which will include at least one complete summer period to minimise disruption of service. This means that, depending on the time the amended Regulations come into force, the compliance deadline is likely to fall in late 2020.

Impact of the changes

The proposed amendments to the Regulations are expected to lead to a significant increase in the installation of final customer metering devices.  They already have to be fitted to new buildings, but will now need to be retrofitted into older buildings, unless it is in an exempt class or fails the cost-effectiveness test.

In addition, the duty to maintain any meters or heat cost allocators which a heat supplier is obliged to fit under the Regulations will be extended to all meters – i.e. even those fitted voluntarily.

The proposed amendments do clarify that, on change of ownership of a heat network, no re-notification or re-testing of technical feasibility and cost-effectiveness is required. This reduces the administrative burden of compliance.

Further changes to take account of the amended Energy Efficiency Directive

There may be more amendments to the Regulations in future to take account of the amended Energy Efficiency Directive (EED 2018) which must be implemented into UK law by 25 October 2020. There will be a separate consultation on this, but this consultation outlines the requirements in text boxes.

Should the revised EED 2018 be transposed into UK legislation, this will introduce a requirement that all new heat metering devices installed from 25 October 2020 are remotely readable. Furthermore, all existing heat metering devices would need to be remotely readable by 1 January 2027, except where Member States can show that this is not cost-efficient.

BEIS expect that by the time the amended regulations come into force after the six-month implementation period, it is likely that most newly installed meters will be remotely readable in any case. However, BEIS are strongly urging heat suppliers to take this into consideration when complying with the amended Regulations.

Further information

To learn more about this topic, look out for an invitation to our next heat network seminar in February 2020, which we are delivering in partnership with Switch2.

Key contacts

Paul Dight

Paul Dight

Partner, Energy and Utilities
United Kingdom

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Richard Goodfellow

Richard Goodfellow

Partner, Head of Infrastructure, Projects & Energy Group
United Kingdom

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Lucy Sturrock

Lucy Sturrock

Partner, Real Estate
United Kingdom

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