EU Energy Efficiency Directive

Executive Summary

This consultation document seeks views on the Government’s approach to implementing the heat metering and billing articles of the EU Energy Efficiency Directive, which was agreed by Member States on 25 October 2012 and came into force on 14 November 2012.

For the full 72-page EU Energy Efficiency Directive, click here

Background

The Energy Efficiency Directive

1. This consultation seeks comments on the implementation in the United Kingdom of the metering and billing requirements of the EU Energy Efficiency Directive (as they apply to heating and cooling). The new Energy Efficiency Directive (“the Directive”) establishes a common framework of measures for the promotion of energy efficiency within the EU in order to ensure the achievement of the EU’s 2020 20 % headline target on energy efficiency and to pave the way for further energy efficiency improvements beyond that date.

2. This consultation focuses on the requirements on the metering and billing of district heating, district cooling, communal heating and/or hot water (as they apply to Article 9.1 and 9.3 and Articles 10 and 11), and on penalties (as applied to the heat elements of Articles 9-11).

3. The Directive repeals the Energy Services Directive (2006/32/EC), amongst others. In that Directive, Article 13 on ‘Metering and informative billing of energy consumption’ included general requirements for the metering of final consumption.

4. The Government’s assessment at the time was that it was not cost-effective to install heat meters. The Energy Efficiency Directive builds on the Energy Services Directive and focusses in particular on multi-apartment/ multi-purpose buildings. The requirements on billing information are also strengthened and extended.

5. Following this consultation, the Government will analyse consultation responses and then develop secondary legislation to implement the Directive’s requirements. The Government will develop guidance on the requirements that involve tests of technical feasibility and cost-efficiency to support organisations in carrying out the necessary assessments.

Guiding principles for implementation

6. The Government’s guiding principles for implementation are to:

Give heating, cooling and hot water customers greater control over their consumption, and consequently costs and billing. Meters provide a direct financial incentive to reduce demand, increase awareness of energy use and a more equitable allocation of costs between customers.
Enable heat network operators to gather information on heat losses and allows better management of systems. This will save energy, as well as reducing carbon emissions and improving security of supply.
Ensure the requirements are fully cascaded and advice provided to support implementation, with the ambition to provide greater efficiency and transparency for heat networks customers.
Ensure consistency with the Government’s overall approach to energy efficiency and fuel poverty.
Ensure that a proportionate approach to implementation is taken, minimising the administrative burden placed on UK business.
Deepen our knowledge of the extent of heat networks at all scales, to support a range of practical measures being developed to support the sector such as an industry-led consumer protection scheme and work on harmonising technical standards. This consultation is also being supported through additional evidence gathering initiatives.
Support the overall development and expansion of the heat networks sector in the UK.

What are the requirements of the Directive on metering and billing?

7. Articles 9, 10 and 11 focus on the metering, billing information and the cost of access to metering and billing information. This consultation deals with these requirements as they affect the metering and billing of district heating, district cooling, communal heating and/or hot water.

8. On metering: Article 9 makes a number of requirements on the metering of district heating, district cooling, communal heating and/or hot water, both to measure individual consumption and consumption at the building-level in multi-apartment/multi-purpose buildings. Some of the requirements are dependent on tests of technical feasibility and cost-efficiency. However, in three instances the requirement is not conditional on such tests.

The three are where:
(i) a new connection is made in a new building;
(ii) where a building undergoes major renovation; and
(iii) at the point of delivery or heat exchange to buildings of multi-apartment or multi-purpose use.

9. On billing information and on the cost of access to metering and billing information (Articles 10 and 11). These Articles make a number of requirements on billing information and the cost of access to metering and billing information. A number of the requirements on billing information relate only to those heat network customers with heat meters, and/or apply conditions of technical feasibility, cost-effectiveness or appropriateness. Article 11 requires suppliers or other organisations to bear the costs of producing and delivering bills and billing information to final customers. The impacts of these requirements are less certain, though electronic metered billing is the industry norm in new developments, where metering systems are retrofitted and where existing meters are replaced.

Timetable for implementation

10. The overall deadline for transposition of the requirements of the Directive is 5 June 2014. These requirements come into force from this date. The requirement for completion of an assessment and/or installation of individual heat meters of heat cost allocators in multi-apartment/multi-purpose buildings is given a deadline of 31 December 2016 in the Directive.

11. In the Directive, requirements on billing information and on the costs of billing information apply across all final energy consumption, including heating and cooling. Article 10 requires Member States to ensure that, by 31 December 2014, billing information is accurate and based on actual consumption, where it is technically possible and economically justified.

Directive comes into force in the UK - 5 June 2014

Accurate billing information (where technically possible and economically justified) - 31 December 2014

Deadline for implementation for multi-apartment/multi-occupancy buildings - 31 December 2016

Fit with policy landscape

12. The Government has identified heat networks as having an important role to play in the transition to low carbon heating. Heat makes up around half of the final energy consumption in the UK and contributes around a third of the UK’s greenhouse gas emissions.

13. The Government is supporting the deployment of heat networks (district heating) in a number of actions set out in the March 2013 publication: "The Future of heating: Meeting the challenge".

14. For example, a new Heat Networks Delivery Unit has been established to provide specialist expertise to assist Local Authorities to develop heat network plans to the point where they are feasible investment propositions. In Scotland, heat policy is devolved and the Scottish Government will publish its draft Heat Generation Policy Statement for consultation in the New Year. The Scottish Government has set out its support for district heating in its District Heating Action Plan, published in May 2013.

15. Heat networks supply heat to a number of buildings or dwellings from a central heat production facility (or facilities) through an insulated pipe system, which is in general underground. Heat networks can be both lower carbon and cheaper for consumers than a building-level heat solution. The amount of heat supplied to buildings in the UK via heat networks is around 2% of domestic, public sector and commercial heat demand.

16. New private sector developments and new local authority-led heat network schemes tend to have heat meters installed as standard and charge on the basis of heat usage by individual properties. However in older schemes, customers are typically billed for a fixed proportion of the total heat generated.

Benefits of heat metering

17. Where meters are installed, with greater control and transparency of consumption and charging, they allow consumers to:

Decide when to use their heating (and cooling) systems and at what temperature to heat their homes (and businesses);
Have greater control over the energy they use and the amount that they pay;
See accurately what energy they use and to encourage consumers to identify and reduce wasteful consumption;
Avoid the subsidisation of abnormally high usage by lower energy consumers. For example, in multi-apartment buildings, where flat-rate charges can distort individual heat consumption variances. Though there are important considerations on the impacts on vulnerable consumers.

On a system-wide basis:

Building-level meters will help to highlight the heat provided to a building as a whole, and those heat distribution networks that are poorly performing at a system-wide level. This will enable heat network operators to identify system

Heat metering and billing: extent and impacts

18. A BRE study commissioned by DECC concluded that it was difficult to say how many dwellings are served by heat meters. Responses from the heat networks survey work undertaken by Databuild suggested that approximately 25% of existing residential-led heat networks schemes have heat meters installed. The charging mechanisms for the remaining 75% are based upon apportionment or points based system. This survey and a review of recent case studies demonstrated that heat metering is being installed in new developments, particularly in the housing sector. An earlier study in 2007 indicated that 77% of dwellings in the social housing sector connected to a heat network did not have heat meters.

19. The Government does not have information on the extent of district cooling or communal heating and/or hot water systems or the extent of the metering of these technologies.

20. The Impact Assessment that accompanies this consultation document focuses on the least cost way of implementing the requirements of the Directive and then the costs and benefits of any additional elements that could improve the net benefit to the UK, in line with better regulation principles. Based on existing limited data, our analysis of the cost-effectiveness of meters suggests that there are no properties are likely to be cost-effective for individual consumption meters, based on the assumptions used. However, there is uncertainty around the costs and benefits surrounding the metering of heat networks. The costs and benefits presented in the Impact Assessment require a number of assumptions to be made to address a lack of evidence. These assumptions can significantly alter the costs and benefits of the options and the Impact Assessment provides sensitivity analysis to illustrate the uncertainty and impact of costs. The Government is seeking to address these uncertainties through this consultation and further evidence gathering.

Policy options

21. The heat networks sector as a whole is not regulated in the same way as the gas and electricity markets. An analysis of existing policies has concluded that they do not adequately meet the UK’s legal obligation under the Directive.

Policy approach and options

22. The Government is consulting on six different policy approaches. All of the options would require the lead action on implementation to rest primarily with heat network operators (HNOs). HNOs would be required to implement the metering and billing requirements of the Directive. This would involve all owners of such schemes with responsibility for heat networks schemes and heat supply. The variation in the options follows two broad themes:

on responsibility and support for the application of cost effectiveness and technical feasibility tests where these conditions apply to meter installation. The options considered cover either where an assessment of every individual unit is required or where a high-level system-wide sift would be used to identify those properties that would then require unit level assessment. This in turn links to the requirements on notification.

on notification, monitoring and enforcement. The first option proposes detailed unit by unit data reporting to the scheme administrator the result of which would mean the scheme administrator would only use a small sample to survey or inspect for compliance. The other option would not require detailed reporting, thereby reducing the burden on HNOs. Instead this would rely on the scheme administrator using a larger sample to survey and inspect for compliance.

23.The document considers using the Building Regulations under the Building Act 1985 to implement all or part of the metering requirements. However, building regulations are not a direct way of regulating the on-going activities of heat network operators; private sector approved inspectors, who carry out about half the building control work in England, have no enforcement powers; and building regulations requirements are now fully devolved, so that any implementation in building regulations relating to England alone would have to be accompanied by equivalent legislation in the Devolved Administrations, which would not be achievable within the transposition timetable.

Routes to implementation

24. Using the least cost implementation route identified through the Impact Assessment, it is anticipated that the steps for metering and billing implementation would include the following core elements:

Each heat network operator will need to ensure their heat networks scheme database and extent of metering currently is understood and recorded – both at building and individual apartment or business unit level. A similar approach will be needed to establish the status of billing information and costs.
The mandatory requirements for meter installation and billing information will need to be implemented.
The Government will provide central guidance to enable HNOs to undertake tests of technical feasibility and cost-effectiveness where these apply. The details of the guidance will be developed ahead of the transposition deadline of 5 June 2014.

25. For the metering requirements, the actual assessment would consist of two stages.

(i) An initial stage where a HNO will assess whether a heat meter is deemed to be cost-effective based on the Government’s guidance which will allow a desk-study of the types of properties on a network, using criteria such as on heat demand, insulation-levels, etc.

(ii) For those units where it is deemed to be cost-effective, a second stage would involve a site visit by an engineer to confirm that a meter or heat cost allocator would be technically feasible. This may involve checking that there is sufficient space and access to pipework to install a meter. The site visit would also allow the heat network operator to collect information which may adjust the cost-effectiveness calculation, for instance confirming that there are heating controls installed.

Scheme administration

26. The scheme administrator will have several key regulatory responsibilities in administering the heat metering requirements of the Directive. The Government envisages that these will include:

Undertaking, or commissioning through a third party, a system of monitoring of scheme notification and monitoring for compliance, including through sample survey and site visits;

Responsibility for the central guidance on technical feasibility and cost-effectiveness, though the Government will be responsible for commissioning the first template for this guidance before transposition;

Responsibility for scheme enforcement.

27. We have identified two possible organisations who may be well placed to take on the role of the scheme administrator:

The National Measurement Office, which has a UK-wide remit; or
Through an extension to the remit of the Heat Networks Delivery Unit, DECC in England and Wales.

28. The National Measurement Office (NMO) is an Executive Agency of the Department of Business and Skills (BIS) and is responsible for ensuring fair and accurate measurements are available and used for transactions regulated by law, enforcement of a range of technical and environmental regulations and maintaining the science base for measurement in the UK.

29. The NMO is also responsible for approving gas and electricity meters used for the purposes of billing and some market surveillance responsibilities for the accuracy of meters in the field.

30. As a UK-wide administrator and enforcement body, NMO is responsible for enforcing a range of technically complex pieces of environmental and measurement based legislation. NMO operates as a modern risk-based, business-focused authority. It aims to minimise burdens on compliant business while using a range of enforcement tools to target identified infringements.

31. The Heat Networks Delivery Unit, an extension of the Heat and Industry Directorate in DECC, is tasked with working with local authorities to support the deployment of heat networks. The Unit is staffed with engineering, financial and commercial experts with extensive knowledge of the heat networks sector.

32. Given the similarities with its existing metering work and enforcement powers, the Government considers that the NMO should be the preferred scheme administrator.

Consultation timeline, stakeholder engagement and additional evidence gathering

33. The Government is running the consultation for 6 weeks. To support this consultation period a number of events will be run across the UK to explain what the Directive requirements mean, the Government’s approach to implementation, and to gather further evidence.

34. The Government is also commissioning a survey of 500 district heating schemes of varying sizes to im