Background
Domestic consumers on heat networks receive support with their heating and hot water bills via the Energy Bills Discount Scheme (EBDS), which applies to energy use from 1 April 2023 to 31 March 2024. This is because heat networks purchase energy (gas or electricity) to produce heat through commercial contracts, so the Energy Price Guarantee (EPG) does not apply. The EBDS aims to ensure that domestic consumers on heat networks do not face disproportionately higher heat and hot water bills when compared to consumers in equivalent households who are supported by the EPG. The scheme supports the wholesale element of a heat network’s energy tariff, up to the point that the Minimum Supply Price is achieved. The Minimum Supply Prices are set as:
- Electricity – £340 per MWh
- Gas – £78.3 per MWh
The Energy Bills Discount Scheme Regulations 2023 (GB), the Energy Bills Discount Scheme Regulations 2023 (NI) and the Energy Bills Discount Scheme Pass-through Requirement (Heat Suppliers) Regulations 2023 were brought into force on 26 April 2023. Under these Regulations all eligible “heat suppliers” with at least one domestic end consumer are required by law to apply for a specific higher heat network EBDS rate and pass on the benefit they receive to their end consumers. This applies even if the heat supplier has secured prices cheaper than the EBDS target price.
Further information about the EBDS can be found here.
Who are heat suppliers?
The heat supplier is the body responsible for supplying and charging for the supply of heating and/or hot water to premises supplied by the heat network. In most cases, this will be the body that holds a heat supply contract or equivalent with the end consumer. This will typically be the housing association landlord, unless it has appointed an operator (e.g. an ESCO) who takes on responsibility for procuring gas/electricity and enters into heat supply contracts with end consumers directly. Where the housing association contracts out the metering and billing services to a billing agent it will still be classed as the heat supplier under the Regulations as it will hold the contract to supply heat and hot water to the consumers, so it has ultimate responsibility for making the EBDS application.
Requirement to apply
Under the Energy Bills Discount Scheme the heat supplier is responsible for:
- submitting an application for the higher heat network EBDS rate through the EBDS application portal;
- meeting requirements to pass on the benefit of the EBDS to end consumers for energy used between 1 April 2023 to 31 March 2024;
- if it has not already done so, registering for the Energy Ombudsman’s redress scheme should a complaint be made by a consumer.
Deadline for applying
Heat suppliers have until 25 July 2023 to submit an application for the higher support. If a heat network they supply becomes eligible after the scheme opening date of 26 April 2023 they will have 90 days to submit an application from the date at which that heat network becomes eligible (or, if later, from the date on which they became aware of its eligibility).
At present, heat suppliers with multiple heat networks need to submit separate applications for each eligible heat network. A bulk upload facility is in development and should be operational in mid-July.
Consequences of failure to apply
The Office of Product Safety and Standards (OPSS) is responsible for enforcing the EBDS application requirement in the UK. OPSS’ functions include maintaining a UK-wide heat supplier database (which is not publicly accessible), pursuing outstanding application submissions and undertaking enforcement action in response to non-compliance.
If a heat network supplier fails to submit a valid application by the deadline, OPSS will engage with them to bring them into compliance. OPSS has access to a range of enforcement powers to support this process where necessary, including levying a fine on the heat supplier of up to £5,000.
Future regulation of heat networks
Looking ahead, regulation of heat networks is expected to be introduced in early 2024 as a key part of the Government’s Energy Security Bill.
The Bill appoints Ofgem as heat networks regulator. It contains powers to introduce an authorisation regime so that organisations that supply heat through a heat network or operate a heat network can be effectively regulated. This will include provision for fair prices and transparent information for consumers, a high quality of service, and minimum technical standards and carbon limits.
Ofgem will monitor compliance and will be given powers under the Bill to take enforcement action where heat networks are not meeting the required standards.
Regulations under the Bill are expected to provide Ofgem with powers to investigate and intervene where consumer prices appear to be disproportionate compared with heat networks with similar characteristics, or if prices are significantly higher than those consumers would expect to pay if they were served by an alternative and comparable heating system. The Bill also provides the Secretary of State with powers to introduce various forms of price regulation, including a price cap, should it be necessary to protect consumers whilst growing and decarbonising the market.
Housing associations with heat networks should take the opportunity now to review their existing contractual arrangements and consider how the new regulatory regime will impact on these.
For more information please contact Kris Kelliher.
