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Meet your obligations with heat network regulations

Posted by Ian Allan

Friday 2nd September, 2022

Unmetered Series: The energy crisis and the Cost Effectiveness Tool

Posted by Ian Allan

Anyone reading this will likely already be familiar with the 2014 Heat Network Regulations (HNR). The intention of the HNR’s is to ensure heat consumption is in line with what people need. It works on the assumption that if residents' charges are not linked to consumption, they have no incentive to use heat carefully and this leads to unnecessary carbon emissions, cost, and waste.

At Switch2, we have been supplying metering and billing services to UK heat networks for over four decades. Based on our experience, we can unequivocally state that when consumers’ bills are not linked to their consumption, that usage exceeds requirements by up to 50%. This effectively results in bills that cost twice the amount they would if consumption was linked to cost.

A common misconception of the HNR’s, is around the requirement to complete an assessment through the Cost Effectiveness Tool, (CET). For those unfamiliar, the CET was created to assist in determining whether the installation of heat meters was economically viable or not. It has often been a point of contention as to whether completing this assessment was itself mandatory. It has been confirmed on many occasions by BEIS (Department for Business, Energy & Industrial Strategy), that the CET is not a mandatory requirement, but a tool designed to highlight exceptions, rather than remove the need to meter.

The CET is sensitive to the cost of gas, so any increase in the input price of gas has a dramatic effect on the outcome. When most CET audits were conducted, the price of gas was around or below 2p per kWh. At this price, negative results were frequently produced, and operators were provided with a legitimate reason to not meter their networks – remember, a decision to install meters could still have been made, but the CET negative result became an excuse not to incur the cost at that time.

With gas prices now in the region of 10p per kWh (and set to rise further), many of these schemes would get a ‘positive’ result, meaning it would be cost effective to install heat meters.

The HNR’s require that a feasibility assessment via the CET, be repeated and provided to BEIS every four years. As it stands, Switch2 do not see that gas prices are likely to return to the 2p per kWh levels we saw pre-energy crisis, making heat metering an inevitability rather than an option.

So what?

Well, let's compare two heat network operators. Both conducted CET assessments of their schemes, and both ended up with ‘negative’ results. One of the operators still decided to install heat meters despite the result. The second operator decided that because of the negative result they would not install meters and assumed the price of gas would stay around the 2p per kWh level. Let’s see how the bills of the two sets of residents changed from before the energy crisis, to the bills they’re receiving now.

In this scenario, both schemes we’ll be comparing consist of 33 dwellings. At 2p per kWh of energy used, the residents of the unmetered scheme are paying £6,000 per annum or £3.50 per week per dwelling. As we stated earlier, installing meters sees a reduction in consumption of up to 50%, so the annual bill of the metered scheme was reduced to £3,000 per annum or £1.75 per week per dwelling.

Current prices are now in the region of 10p per kWh. The unmetered scheme has seen an annual increase of £24,000, meaning that the weekly cost per dwelling has increased from £3.50 to £17.48! The metered scheme has also seen an increase, from £3,000 per annum to £15,000, but the weekly cost is a much more manageable cost of £8.74 per dwelling per week.

The reluctance of residents to have meters installed is often cited as a reason for not doing so, especially when a negative CET result has been achieved, or the building class doesn’t require heat meters under the HNR’s. However, we believe that if you demonstrated to residents that they could be saving nearly £38 each month, they would welcome the installation of meters to help alleviate the impact of the cost of living that many of us are currently dealing with.

What does this mean for the Cost Effectiveness Tool? Is it now ineffective or redundant?

Probably not, as building owners still need to be protected in the circumstance that the installation of meters is prohibitively expensive. But, for sure, this is far less likely that it was, and it’s certainly the case that if gas prices alone meant it was too expensive to meter, then that argument should be left out in the cold.

Metering helps relieve the threat of fuel poverty from rising energy prices. Switch2 can help you meter, making your schemes fairer, cleaner, and more efficient – contact us to see how we can help.

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