Community heating schemes have been earmarked as a major force in the battle to lower the UK’s carbon footprint, but are the heat tariffs delivering value for money?
With the promise of lower carbon emissions and great operational efficiencies, community heating schemes are growing in popularity among local authorities, housing associations and social housing providers. However, the heat is delivered to customers without the usual competition and regulatory protections of the wider gas and electricity markets.
What is community heating?
Community heating is where a single heat source serves more than one property, this could be an apartment block, housing estate or commercial complex. A heat interface unit (HIU) in each dwelling or building provides all the control and functionality of a traditional boiler.
Combined heat and power (CHP) plants generate heat as a by-product of generating electricity by burning coal, oil, gas or biomass. By placing CHP plants in large building complexes or housing developments, the heat can be circulated in pipes to each building or dwelling.
Another system is a heat sharing network, when a communal ground array can be accessed by each building which uses its own heat pump for heating and hot water. Buildings with excess heat can reject heat to the network, which is more efficient than venting heat as hot air.
What is the impact on customers?
In May 2017 the Citizens’ Advice Bureau published a report on how the largest community heating providers are approaching customer service in four key areas: supply agreements (contracts), tariffs, metering and debt.
The findings showed that the calculation and availability of heat tariffs varied between suppliers, with 70% of heat networks only offering a single tariff. Plus, there were no set standards for calculating tariffs.
Customers also have less choice when it comes to metering, with many opting for a pre-payment meter (PPM) to help them manage their bills. Only 50% of customers who responded said that they had a choice of meter.
The good news is that the report found that the level of debt and arrears is low, with an average of 1.45% in comparison to the gas and electricity averages of 3.4% and 3.1% respectively.
How are heat tariffs calculated?
The heating bill usually consists of a unit rate of energy and a standing charge. The unit rate is based on domestic gas tariffs, either an average of the main suppliers or the best available tariffs in the market. The unit rate also takes into account the efficiency of the individual heating system.
The standing charge relates to the cost of maintaining and operating the heat network, including new machinery, insurance and repairs. Most suppliers set standing charges to take account of the costs to serve customers and maintain buildings. They then link this to inflation such as the Consumer Price Index (CPI), the Retail Price Index (RPI) or a mix of the two.
The Landlord and Tenants Act also has to be considered as the cost of maintaining heating systems has to be included in the rent. For this reason, social landlords pass elements of the standing charges to residents in the rent.
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Are customers getting value for money?
One of the key differences with community heating networks is that there is a limited choice of tariffs. Some suppliers provide tariffs for high or low usage and social housing tenants.
The Citizens’ Advice Bureau found that low usage tariffs have a lower standing charge to reflect that the lower impact on the system. Housing associations help their tenants by contributing to the maintenance costs, while the tenant covers the servicing elements of the standing charge.
It also worth remembering that the price per kWh may be higher with a heat tariff but the amount used will be considerably lower, offering a potential overall saving to the consumer. The low level of debt also points to community heating offering good value for money.
Want to know more?
Here at ista, we’re experts in ensuring heating costs are distributed fairly with everyone only paying for what they consume. Whether it is at the apartment heat meter or our innovative heat cost allocators, we calculate each tenant’s bills and ensure regulatory compliance.
Our systems deliver a flexibility to match your organisation and allow your tenants to receive their bills in a number of convenient forms. We give you confidence and transparency in the full settlement of your community or district heating across your buildings and whole estate.