Some customers on UK heat networks pay way over the odds for their heat but because heat networks are natural monopolies there’s little they can do about it. Sure, we can introduce some direct competition on heat networks (for example by making it possible to switch out the metering and billing provider) but the opportunities are pretty limited.
While direct competition between suppliers is limited, it is possible to introduce virtual competition between suppliers by making the cost to customers transparent and available to everyone. In fact our best opportunity by far to apply competitive pressure in the heat market is to publish tariffs, including unit and standing charges, in a central, publicly available register.
Heat networks are cheaper for customers on average, but price variance is high. In last year’s heat network market study, the CMA found that prices on the majority of heat networks were close to or lower than the price of comparators based on individual gas boilers, but they also found that prices varied widely, with a small minority paying far more than average.
In their market survey in 2017, BEIS had similar findings. The median price suggested that, on average, heat network customers pay around £100 less per year for heat and hot water than those not on heat networks. But they also found large variation in pricing on heat networks, with some customers again paying far more than average.
High costs might be due to poor system performance or profiteering. Either way, publishing heat tariffs and standing charges would turn the spotlight on these outliers, giving customers a firmer basis for complaints and operators a clearer basis for evaluating the way they run their business.
As a result, we would see a faster emergence and adoption of good practices as outliers on the high side are pressured to migrate towards the mean.
In addition, centrally available data would give renters and buyers a quick way to assess whether the tariff and standing charge at their potential new home represent a good deal. If the landlord or vendor is required to point punters at this data before they sign, they may think twice about trying to charge over the odds.
Operators might protest that tariffs are commercially sensitive and shouldn’t be in the public domain. But this argument ignores the fact that operators themselves put tariffs into the public domain every time they send out a bill.
In fact, tariff information already trickles out by way of surveys, reports and even online spreadsheets maintained by disgruntled heat network customers. The problem with this data is that it quickly goes out of date and may not be standardised in a way that allows it to be compared across other schemes. In any case, it shouldn’t be the customers’ responsibility to share tariff information in order to drive improvement in the market.
To have the greatest impact, a central register must be accurate, regularly updated and standardised in a way that enables them to be compared on a like-for-like basis.
To allow comparison of tariffs, a register must be clear about what’s included in a given unit or standing charge and what isn’t. For example, it’s not helpful to compare one standing charge that includes maintenance or replacement of equipment with another that doesn’t.
In summary, publishing unit and standing charges in a central, publicly available register will improve heat network performance, reduce costs and increase transparency. Such a register should be created and maintained by government or another independent body as an important way of improving customer outcomes.
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