Heat Tariffs

Understand how to build fair, transparent tariffs that balance resident affordability with operational costs. Learn the formula for compliance-grade pricing under Ofgem.

Understanding Heat Tariffs

Grace has got her head around metering and billing and has now reached the point in her journey where residents are asking the most important question: “What am I paying for?”

So how do you actually set a fair and compliant heat tariff?

Eden explains that tariffs aren’t just numbers plucked out of the air. They’re built from clear building blocks, each of which has to be calculated and justified. If you get this wrong, you risk resident complaints, regulatory scrutiny, and financial shortfalls.

A heat tariff is the way costs are fairly divided between residents, ensuring the network covers its running costs while remaining affordable and transparent. It’s also a regulatory requirement - Ofgem will expect suppliers to be able to demonstrate that tariffs are fair, evidence-based and compliant.

Why It Matters

For residents, tariffs are about trust. Clear, transparent calculations build confidence that they are only paying their fair share. For property managers, getting this right reduces disputes, supports compliance and protects reputations.

Tariffs are where regulation meets reality. If your network is inefficient or your billing inaccurate, it will show up in what residents are charged. Data is the difference between fair and unfair bills.

Daniel Davies - d-Analysed

There are three main components to consider when calculating a heat tariff

Main Utility Supply Contract Costs

The wholesale cost of the energy coming into the building - whether that’s gas, electricity, or another source. This is usually the largest part of the tariff.

Network Efficiency

How much of that purchased energy actually reaches residents’ homes. Losses in the system (e.g. poor insulation, unbalanced flow, plant inefficiency) push costs up. The more efficient the network, the fairer the tariff.

Fixed Costs

These include ongoing operation and maintenance, metering and billing services, and emergency support. Fixed costs need to be recovered to keep the network viable.

The Building Blocks of a Heat Tariff

Fixed Charges

These cover the unavoidable costs of running the network, like standing charges for maintenance contracts, metering systems, administration, and debt recovery.

Variable Charges

Based on how much heat residents actually use, measured in kWh. This reflects fuel costs, plant efficiency, and distribution losses.

Future-Proofing

Tariffs must also anticipate upcoming efficiency requirements and regulatory obligations, making sure networks remain viable and compliant over time.

A Step-by-Step Approach

Collect the data – fuel input, plant performance, metering data and O&M costs.
Allocate costs fairly – split between fixed and variable, ensuring residents pay for what they consume while sharing the true cost of operating the system.
Check compliance – tariffs must align with Heat Network (Metering & Billing) Regulations and, soon, Ofgem’s consumer protection framework.
Communicate clearly – residents need to understand their bills. A simple, transparent tariff builds trust.

Turning Costs into Tariffs

A Worked Example:

Let’s say your network buys £100 of energy from the utility supplier.

If your network is operating at 90% efficiency, then around £90 worth of usable heat makes it into residents’ homes.
If your network is only 40% efficient, then just £40 worth of usable heat is delivered - the other £60 is wasted in losses.

Now imagine those wasted costs don’t just disappear. They end up on residents’ bills.

This is why tariffs can’t just be about utility prices. They have to reflect:

1.    Contracted supply costs (the £100 you buy in).
2.    Efficiency losses (how much of that energy is actually delivered).
3.    Fixed costs (maintenance, metering, billing, emergency support).

So, two networks with the same supply contract could end up with wildly different resident bills purely because of efficiency.

For Grace, this worked example is a wake-up call: she realises her tariff review isn’t just an accounting exercise. It’s a direct reflection of how well her network is managed and maintained.

Tariffs can’t just be set once and left. Prices, efficiency and maintenance costs change. That’s why regular tariff reviews are essential - not only for compliance but also for resident trust and affordability.

Data Energy offers several options for tariff reviews, giving property managers like Grace confidence that they are charging fairly and staying compliant.

Practical Support

Most metering and billing companies, like Data Energy offer several options for tariff reviews to PMs. These can include:

Annual tariff reviews aligned to utility contract renewals
Mid-term benchmarking against market averages
Independent efficiency checks to evidence costs

Fair Pricing

When Ofgem’s framework goes live, every heat supplier will need to be authorised. Alongside this, pricing rules will ensure residents pay fair, transparent and justifiable tariffs

For most, these roles will be held by the same entity. If a network is part of a larger district scheme with a thermal substation, the segment from the substation to consumers is registered separately, with its own designated Operator.

What it Means for PMs:

No more "back of an envelope" tariffs.
Tariff methodology must be documented.
Prices must be competitive and proportionate.

Perhaps the biggest cultural shift: PMs will be judged not only on compliance, but on service quality. Ofgem will set Guaranteed Standards of Performance (GSOPs), including:

Billing accuracy.
Complaint response times.
Service reliability.

For PMs, this means benchmarking performance and building processes that prove residents are receiving a fair deal.

What do you think will be the most challenging GSOP for property managers?

Billing accuracy
Complaint response times
Service reliability

Key Takeaway

For PMs, this means benchmarking performance and building processes that prove residents are receiving a fair deal.