“Electricity” – a song written by Elton John and Lee Hall for Billy Elliot – reveals young Billy feeling “electricity, electricity, sparks inside of me, and I’m free, I’m free”. Some tenants of multi-let buildings may also feel as free as Billy, knowing they may be free to choose their own energy supplier.
In 2008, the Court of Justice of the European Union held that allowing an airport to enter into an exclusive contact for the supply of energy is contrary to EU competition rules. The decision had significant implications, not just for the development of distributed energy and private wire networks, but also for the Government’s plans to deliver “zero carbon buildings”.
The judgment of the case (the Citiworks ruling) is particularly relevant to networks in the UK, where one of the concerns is that customers on these types of network may not be able to switch suppliers if prices increase.
Now, under the Electricity and Gas (Internal Markets) Regulations 2011, most tenants will have the right to ask their landlords to allow an alternative energy supplier to distribute electricity to them via the existing cables and electricity system in the building. In a multi-let building, each tenant could ask for a different supplier from that chosen by the landlord.
Previously, a landlord could select an energy supplier and often negotiate the terms of that supply. By bulk buying, the landlord could end up agreeing a cost effective deal (although it may be subject to minimum energy consumption levels). This cost is then either passed to the tenants of the building as a stand-alone additional charge or included in the service charge. The landlord could also add on an “administration cost” to cover its own cost of administering such a system. In effect, the landlord could operate a monopoly electricity network within a multi-let building where the tenants would not have had freedom of choice.
The new legislation confirms that national laws must enable customers (which includes tenants) to choose their electricity suppliers freely and ensure that electricity distribution systems are open for use by anyone. The effect of this in the property market is to increase competition between electricity suppliers and could have the effect of driving prices down by allowing tenants to get a better deal than that which is offered by their landlord.
If a tenant makes such a request, the landlord must state within ten working days whether it agrees or not. There may be good reasons why the landlord disagrees, such as the network within the building does not have sufficient capacity, it is not technically feasible, or that there would be a significant and adverse impact on the landlord or others as a result. However, if the landlord does agree, it must provide the relevant information to the new energy supplier within 20 working days of the tenant’s request. It should also start the process of obtaining Ofgem approval of a tariff structure (if it has not already done so) and indicate the terms on which access will be granted. It should also start discussions with the new supplier about the practical and technical implications of permitting access.
The new rules allow tenants to take advantage of cheaper energy supplies. However it is the landlord who will shoulder the cost of such changes, as usually a landlord will be limited in its ability to refuse such access and usually bears the cost of establishing access for the new energy supplier.