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Heat Network Regulations – Data Centres

29 September 2019

The Heat Network (Metering and Billing) Regulations 2014 (the “Regulations”) were introduced as part of the continued drive for better energy efficiency (and reduced emissions) around the European Union.

The Regulations implement the metering and billing requirements of the 2012 EU Energy Efficiency Directive. They affect those who supply and charge separate legal entities for heating, hot water or cooling through Communal Heating or a District Heat Network. An estimated one-third of the UK’s carbon emissions come from heat generation. The Regulations impose obligations in an attempt to reduce this.

Communal Heating concerns the distribution of heating or cooling within one building to at least two separate legal entities, while a District Heat Network refers to a system distributing heating or cooling to more than one building and to one or more separate legal entities. The Regulations cover most District Heat Networks and Communal Heating within the UK and partially came into force in December 2014. The first phase of the legislation included a requirement for suppliers to notify the National Measurement Office with details of their system or network by 31 December 2015; suppliers must make these notifications every four years. The second phase of the legislation included a duty to install heat or cooling meters by 31 December 2016 (unless specified exclusions are relevant) and to ensure that bills are accurate and based on consumption (together with the provision of information relating to current prices and comparisons against previous energy usage).

There are certain circumstances in which the Regulations could impose duties on Data Centre Operators. Data Centre Operators could fall within the scope of the Regulations if:

  • they provide heating or cooling to a separate legal entity externally (District Heat Network); or if they provide heating or cooling to more than one legal entity within the same building as the Data Centre (Communal Heating);
  • the separate legal entity is paying for the heating or cooling. Note that indirect payment would still be in scope, for example, if this was included as part of ground rent or a service contract;
  • chilled water is being used at the point of cooling; and
  • the separate legal entity/entities are situated in self-contained areas.

Where this is the case, Data Centres will be required to notify the National Measurement Office retrospectively. This can be done by filling in the notification template (found here) As the deadline passed some time ago (December 2015), the Department for Business, Energy and Industrial Strategy (“BEIS”) will have to consider whether to permit individual notifications on a case-by-case basis and so Operators would be advised to contact BEIS as soon as possible.

It may also be the case that heating or cooling meters need to be added. To assess whether this is necessary, consideration should be given as to whether the Data Centre meets the ‘economic feasibility’ and ‘technical feasibility’ tests set by BEIS. In order to satisfy these tests (and therefore exclude this obligation), the supplier must demonstrate that:

  • the installation is not cost-effective. To achieve this, a comparison between the costs of installation and the estimated savings over a ten year period needs to be carried out; or
  • it is not technically practicable. The analysis here is complex and relating to the design and method of heat distribution. Listed buildings are more likely to benefit from this exclusion.

Failing to comply with the Regulations can lead to a fine of up to £5,000 in each case and potentially to criminal sanctions and/or unlimited fines:

  • if they export heat and provide district heating;
  • if they supply heat or cooling to customers on a campus; or
  • if they supply chilled water cooling to more than one customer in self-contained units within a single building.

Remember though: if the heating/cooling is not provided to a third party, the Regulations will not apply - if there is no end ‘customer’, you need not worry.

A 2018 report has recommended heat networks be regulated by Ofgem so as to ensure that customers get the same minimum protections and give greater transparency to consumers. The report also seeks to put in place price controls and duties to actively support good quality service, particularly for those in vulnerable positions. It is proposed that heat network developers are given similar rights to other utilities providers. It seems likely that the government will accept these recommendations, and that Ofgem will soon become the regulator for heat networks. The general consensus is that the area will become more akin to electricity and gas provision.

It is important to remember that the Regulations are wide-reaching and can have significant consequences if not complied with. Anyone who is, or is likely to be, affected by them (including Data Centre Operators) would be well-advised to consider the installation of meters and other equipment and to take professional advice to ensure compliance where necessary.

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