What price will we pay for cheaper heat? James Forbes from Burness Paull looks at district heating schemes, fuel poverty and regulation.

District heating (DH) delivers heat and hot water produced by a centralised boiler (either gas or biomass fuelled) via through an insulated pipe network to residential and commercial users. DH schemes can deliver cheaper heat, helping to alleviate fuel poverty, in an efficient and eco friendly manner.

In its policy statement of 2015 the Scottish Government set a target of 1.5TWh of heat via DH schemes by 2020. To put this in context, the average house consumes about 16,000 kWh of gas per year and 1.5 terawatts (1.5TWh) of electricity would power approximately 325,000 houses for a year.

We are nowhere near this heat target but the number of DH schemes steadily increases. At present, unlike the gas and electricity sectors, DH schemes are unregulated. There is a code of practice: the Heat Trust scheme, which many DH suppliers subscribe to, but as the scheme is voluntary there are also many suppliers who do not sign up. A recent study by the Consumer Futures Unit (CFU) of Citizens Advice, Scotland (“Different Rules for Different Fuels: Exploring Consumer Protection in the District Heating Market”), highlighted the fact that the majority of suppliers had no plans to sign up to the voluntary scheme.

The CFU report identifies the need to regulate the sector to promote greater consumer protection, to establish and maintain technical standards and investigate mechanisms to achieve price control. Under this regulated market, DH suppliers would have to be licensed. In the many DH schemes we have advised on in the last 5 years, these have been live issues and as a result we have built in provisions such as charging regimes - benchmarked against wholesale gas prices, protocols to deal with suspension of supply to vulnerable and social housing tenants, service level commitments and compensation for interruption to the supply. In short, many of the concerns expressed by the CFU report can be and are being addressed in heat supply agreements.

While establishing a regulatory body would undoubtedly help to develop and enshrine consumer protection, too much regulation can stifle a growing market. In times of government austerity and tightening budgets, the DH sector itself will likely bear the lion’s share of the costs of establishing and maintaining the regulatory body and the licensing regime. The fear is that those costs will percolate down (as in the gas and electricity sectors) to the end user, and therefore erode one of the key benefits of a DH scheme - cheaper heat.