As the heat network sector prepares for its most significant transformation to date, a new and pressing threat is emerging for housing managers: the sudden collapse of specialist service providers. Anthony Coates-Smith, Managing Director at Insite Energy, explains how to mitigate the risk.
While the long-term outlook for heat networks is one of growth and investment, the short-term reality is more complex. Major changes heralded by Ofgem’s forthcoming regulatory regime are causing a market shake-up. One established player has already entered administration and others may follow, as tighter compliance requirements increase overheads.
For housing managers, the consequences of the sudden and unexpected loss of a service provider partnership can be immediate and severe, ranging from operational disruption and inaccessible data to rising complaints and financial losses. Over time, failures of this kind may also lead to fines or other punitive measures as Ofgem’s approach to enforcement evolves.
The Energy Act 2023 has fundamentally shifted accountability within the heat network sector. When a third-party operator fails, the legal and financial responsibility for ensuring continuity of appropriate service levels for residents now sits with the landlord, Energy Services Company (ESCo), or managing agent as the authorised heat network operator or supplier.
Although Ofgem is unlikely to immediately penalise housing providers acting in good faith during a contractor failure, they will expect to see proactive and robust supply-chain oversight. That includes evidence of due diligence during tendering processes, proper contract management and clear escalation procedures in the case of any concerns. The time is now to make sure these measures are in place.
Reducing exposure
Mitigating the risk of service provider failure begins at the point of procurement. It involves looking beyond cost-led selection criteria to a more holistic assessment of partner capability and reliability, to ensure they can meet current and future needs.
An important part of this is assessing their readiness for the new regulations. That includes their approach to Ofgem’s consumer protection requirements, which have been live since January, and the Heat Network Technical Assurance Scheme (HNTAS), a performance-based framework due to come into force in 2027 setting mandatory technical standards for designing, constructing, and operating heat networks.
Asking prospects to explain in detail how they can help you prepare for the new requirements can tell you a lot about how well equipped they are to tackle the challenges ahead. It’s also essential to check they have all the relevant accreditations and licences, such as ISO 9001, ISO 27001 and Gas Safe, as this helps to confirm a history of compliance with industry norms.
Financial due diligence should include the usual thorough checks through Companies House, ensuring filings are up to date and consistent. Reviewing audited accounts over several years can reveal trends in profitability, debt and cash flow, while VAT registration checks help confirm compliance. Credit reports from recognised agencies can also provide insight into financial stability, including credit scores and any adverse indicators such as County Court Judgements. Understanding company ownership and leadership structures is important, too, providing visibility of who ultimately controls the business.
Additionally, it’s important to review insurance arrangements in detail, particularly professional indemnity and public liability cover, to ensure appropriate protection is in place. And references from current and former clients are crucial, too, as they provide a clear picture of a provider’s reliability and delivery standards.
Third-party provider management specialists can help with carrying out all these kinds of checks. However, this comes at additional cost and doesn’t change the fact that the ultimate responsibility for due diligence sits with the heat network operator or supplier.
Being prepared
Even when all possible checks have been carried out, it’s still strongly advisable to have contingency plans in place in case the worst does happen and systems go dark. Business continuity and disaster recovery planning should form part of the contractual framework. While insurance can provide some protection, it’s not a substitute for robust operational planning.
One of the most important variables to consider is data management. If a provider collapses, ongoing service delivery will depend on immediate access to the technical and financial information needed for the network to function. That includes, for example, full details of the metering infrastructure, meter serial numbers, billing data, heat supply agreements and contact details for residents, including those registered as being in vulnerable situations.
Prepayment systems require particular attention. Housing providers should understand what happens if these systems go offline, ensuring there are manual override options in place. In some cases, this may involve reverting temporarily to credit billing arrangements to maintain service continuity.
Where data cannot be obtained quickly, risks escalate. It could take months to fully restore normal service, during which time reconciling resident accounts becomes difficult, potentially creating financial exposure for housing providers. Meanwhile, for households, the impact is immediate: disruption to heating and hot water, incorrect or delayed billing, repeated requests for information and, ultimately, increased dissatisfaction. It’s no surprise that these scenarios often drive a surge in Energy Ombudsman complaints.
Clearly defined
Provider contracts should include explicit provisions for data ownership and transfer so that housing management teams are clear on what is captured, how it’s stored and who has access to it. Ideally, there should be a secure, centrally accessible repository, rather than reliance on periodic reports or spreadsheets provided by a third party. Regular account meetings should be used not just to review performance, but to understand how collected data supports regulatory compliance and where potential gaps may exist.
This approach should extend to maintenance, too. A complete asset list is vital, alongside planned preventative maintenance schedules, service records and details of any subcontractors involved in maintaining the network.
In theory, this information should be readily available. However, in practice, systems may be switched off, key personnel may have left, or subcontractor relationships may have broken down. This can lead to missed servicing, increasing the likelihood of plant failure, costly repairs and unplanned outages.
Maintaining resident continuity
When a heat network service provider enters insolvency, time is critical. The immediate concern is keeping the heat on. Housing providers should identify alternative metering & billing partners as early as possible.
Peer networks can be invaluable here; other housing associations can provide recommendations based on experience. Industry bodies, such as the Association of Decentralised Energy and the UK District Energy Association, also offer directories of accredited providers who may be capable of stepping in at short notice.
Good communication with residents is vital, too, and some providers can support with this. Clear, timely messaging can help manage expectations and reduce complaints. Residents should be reassured that their heat supply will continue, even if there are temporary disruptions to billing or service. Additional support should be offered to vulnerable households, with clear guidance on where to seek help.
Future-proofing procurement
The failure of a heat network provider is no longer a remote possibility but a credible risk in a sector undergoing rapid change. Experience shows that where the right information is readily available, transitions to new providers can be managed relatively smoothly. Where it’s not, the consequences can be prolonged and costly.
Well prepared housing providers can minimise disruption for residents and protect their own operational and financial position. Mapping third-party dependencies across portfolios provides a clear view of where risks lie, while strengthening data access, contractual protections and provider oversight significantly reduces exposure.