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Legal risks facing developers taking on energy provider role

7 February 2019

At the Heat is Changing Fast event it was highlighted that a number of challenges are facing landlords who own and manage buildings in the private rented sector.

Legal risks facing developers taking on energy provider role | ADE market-news

The event was hosted by Guru Systems, who use smart technology and data to improve heat networks, and specialist clean energy law firm Lux Nova Partners.

Guru Systems Managing Director, Casey Cole said: 

Heat networks are seen as a major part of the Government’s plans to decarbonise the UK economy.

They are now a common planning requirement for developers in most cities and many new housing schemes in London must be on a heat network. That means more developers are adding the role of energy provider to their services.

Developers are already trying to adapt practices to meet with new legislation in managing heat networks, and both the Competition and Markets Authority and Government feel the sector now needs to be regulated to ensure sufficiently high technical standards and a quality experience for end users.

Sandy Abrahams, Partner at Lux Nova, outlined the impact of the current legislation, including the Heat Network (Metering and Billing) Regulations 2014. This requires heat suppliers to install heat meters where possible and provide bills based on actual consumption with clear billing information.  

That means an end to bundling heat costs within service charges where heat meters are installed, a practice that has emerged on some schemes in the private rented sector, with the potential for civil and criminal proceedings for those who fail to comply.

Some landlords have claimed that charging for heat based on metered consumption isn’t allowed for in their existing leases, however Abrahams warned that this may not be sufficient to excuse compliance with the Regulations.

Ms Abrahams said: 

If you have a lease that wraps up billing for heat within a service charge that doesn’t allow for separate billing based on actual consumption, then there is a question mark over whether your lease or the Regulations will prevail.

It can be a criminal or civil offence not to comply with the Regulations, so the safe approach is to assume that the Regulations will apply and that will mean making preparations for amending those leases.

Gareth Jones, Managing Director of leading heat network consultancy FairHeat, told delegates that network design and performance was one of the key factors to consider for landlords operating schemes in the private rented sector – with well-designed heat networks delivering capital expenditure savings, driving down heat costs for end users and reducing reputational risks.

He told delegates that good data on network performance was essential:

Heat networks can be exceptionally cost effective,” he said. “However, they range widely in performance efficiency. Careful management and good data are required to make sure you end up with a well performing network.

By using data intelligently when designing networks, developers and operators can lower build costs and comply with future regulations. It also means acceptance testing can be carried out on your developments to ensure that they are performing as expected before you take handover from your contractor. All this leads to happy residents and fewer complaints.

Victoria Keen explained how one of London’s biggest housing associations and developers L&Q, which has more than 7,000 customers on heat networks, has worked with FairHeat and Guru for a number of years to help improve visibility of performance data and system efficiency. Recently L&Q have established its own energy business L&Q Energy Ltd.

L&Q’s current known development pipeline will see L&Q Energy’s heat portfolio grow to over 40,000 homes over the next ten years. Retaining ownership of operation and maintenance and metering and billing services through L&Q Energy will enable L&Q to have greater control over the level of customer service provided to heat customers.

Finally, Lux Nova’s David Short outlined the implications of controlling and processing more data on the heat usage of end users.

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