Switch2 Blog

Transparent Heat: Understanding the pricing structure

Posted by Kirsty Lambert on 23-Feb-2017 15:05:15

Done wrong, pricing and billing can be a real bone of contention. But, done right it can become a major source of customer satisfaction. That’s why scheme operators are putting in the effort to establish clear and fair pricing structures, with residents fully aware and in the know.

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To ensure a good relationship is built up with heat customers, it is important for them to be clear about what they are paying for. This is especially true because heat customers have no choice once they are connected to a heat network, which makes pricing transparency essential for their cooperation and protection.

It’s an area that shouldn’t be underestimated because customer satisfaction can be enhanced considerably through improved communication - heat suppliers often find customers are more dissatisfied about a lack of information than a perceived problem.

To clearly explain how customers are charged, each can be provided with an annual statement or bill outlining the tariff structure, including the heat charge, the amount of heat energy consumed (normally in kWh) and any other charges. It should show how the charges have been derived and any assumptions used, in a transparent manner and in accordance with the Heat Trust scheme.

Metering customers on heat networks

There are two elements to the heat charge, metered and fixed charges:

  1. Metered charges generally include fuel and other variable elements, whilst the fixed charge takes care of maintenance, billing, heating of common areas, administration and any other fixed components. These
  2. Fixed charges can be allocated based on the size, type or floor area of a property. Local authorities and other social housing providers should consider adding this fixed element to the rent, which often makes more sense and is especially useful in avoiding fixed charges building up on PAYG units.

These charges may also become subject to benefits which will assist resident on low incomes.

Conforming with the heat network (metering and billing) regulations

All billing arrangements need to conform to the EU Energy Efficiency Directive 2012, which set a number of requirements regarding metering and billing on all new and existing heating and cooling systems. These have been implemented in the UK through the Heat Network (Metering and Billing) Regulations 2014, which require operators to provide minimum levels of fair and transparent heat billing.

In cases where there are no heat meters installed, the heat supplier should consider the duty to install final customer meters imposed by the Heat Network Regulations and the reductions in charges that final customer metering can bring by encouraging residents to waste less heat.

Under the Heat Network Regulations, there is the requirement for heat customers to be billed based on actual consumption, with providers issuing billing information at least twice a year (quarterly if electronic) and with every heat bill issued. Publishing this information in an easily accessible format on a website satisfies these requirements.

Fixed and variable charges should be set out in a clear and transparent format, and to further aid transparency, it helps if the components of cost that make up the charges are broken down and listed or referenced on bills. Bills should also include contact details if a customer has difficulty understanding or wishes to pursue an inquiry, with information easily obtainable on the heat provider’s website.

Heat providers should set out in a customer’s heat supply agreement how charges may change, including triggers such as dates or changes in the costs of externally sourced components. If charges are based on a comparison or price index, data sources and any assumptions behind the calculations must be clearly stated to ensure transparency.

To help reassure the customer that the system is of good value and environmentally friendly, it’s important to provide customers with the equivalent charges for common alternatives, along with estimated CO2 emissions and a comparison with the emissions from main alternatives. To facilitate this and to provide better all-round visibility, the heat supplier should consider installing a smart PAYG unit that incorporates an in-home display; capable of showing historic and current consumption in terms of cost, energy and CO2.

Takeaways:

  • Provide a comprehensive annual statement
  • Make it clear what is included in fixed and variable charges
  • Billing needs to conform to Heat network billing regulations 2014, and, if possible, to Heat Trust best practice
  • Give a clear breakdown of cost components
  • Mechanisms for tariff variation should be included in a customer’s heat supply agreement
  • Provide reassurance by providing a price comparison with alternatives
  • Enhance environmental  credentials by showing CO2 savings

How to Operate a Successful Community Heating Scheme: a Best Practice Guide

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Kirsty Lambert

Business Development Director at Switch2

A skilled director and leader with both operational and commercial experience, Kirsty has over 10 years’ experience in the community and district heating industry.