CMA launches market study into heat networks

Radiator Thermostat Print publication


On 7 December 2017, the Competition and Markets Authority (CMA) launched a market study into heat networks. The CMA proposes to conduct a comprehensive study to ensure that households are “getting a good deal”.

Heat networks

Heat networks are systems that heat multiple homes from one central source. Currently around half a million homes in the UK are supplied through approximately 17,000 heat networks, according to CMA figures. Such networks have become increasingly popular in recent years as local authorities and developers aim to deliver lower carbon energy to households. Heat networks can be more efficient than each household having its own gas-fired boiler.

Heat networks are generally unregulated and do not face the same level of price controls as gas and electricity suppliers, although there are some regulations in relation to metering and billing under the Heat Network (Metering and Billing) Regulations 2014. Heat network suppliers are sometimes members of self-regulatory schemes such as the Heat Trust Scheme and the CPI Code of Practice, which provide a certain level of consumer protection. Suppliers may also offer “price promises” to benchmark their prices against gas suppliers, providing some degree of comfort to customers about price levels.

The CMA’s market study

The CMA uses market studies under the Enterprise Act 2002 as an important tool for examining how well competition works in particular markets and for assessing where it should intervene in the interests of consumers. The focus of the CMA on heat networks may lead to new regulation or further enforcement action by the CMA.

The CMA’s press release states that it is concerned that many customers, a large proportion of whom live in social housing, may be unable to easily switch suppliers or are locked into very long contracts – some for up to 25 years – and that there is a risk they may be paying too much or receiving a poor quality of service.

The CMA is planning to examine three broad themes:

  • whether customers are aware of the costs of heat networks both before and after moving into a property
  • whether heat networks are natural monopolies and the impact of differing incentives for builders, operators and customers of heat networks
  • the price, service quality and reliability of heat networks.

Andrea Coscelli, CMA Chief Executive, said that “we have concerns that this sector may not be working as well as it could be for the half a million homes heated by these systems now and the millions that may be connected in the future.”

The CMA will complete its study within the next 12 months. If, as a result of the market study, the CMA concludes that heat networks are not working well for consumers, it has a wide-reaching powers to intervene. This may include opening consumer or competition enforcement cases, accepting undertakings from companies involved (for example to provide customers with better information), recommending regulation to the government or launching a full in-depth market investigation.

Next steps

The CMA has stated that it will begin gathering evidence from a wide range of stakeholders, including heat network builders and operators, other government departments, local authorities, sector regulators and consumer groups. The CMA will expect stakeholders to provide it with information voluntarily but also has formal powers to compel the provision of information under the Enterprise Act 2002.

We expect industry participants (including heat network suppliers and large customers) to receive detailed requests for information in the next few months.

In addition, the CMA has published a Statement of Scope on which the CMA welcomes views by 12 January 2018. The CMA has six months to decide whether to propose to make a full market investigation reference (by 6 June 2018).

The Competition Team at Walker Morris has extensive experience of advising on CMA market studies and Trudy Feaster-Gee has prior experience of working at the CMA. We can support you in reviewing the compliance of your contractual documents and business practices with competition law and consumer protection regulations and in putting forward your views to the CMA or responding to information requests from the CMA. For further information, please contact Trudy or any member of the team.