Heat networks - systems that heat multiple homes from one central source – currently supply about half a million UK homes through about 17,000 networks.

They can also be more environmentally friendly than some other sources of heat, delivering lower carbon emissions and resulting in cost benefits to households.

As a result, heat networks form an important part of government strategy to reduce carbon and cut heating bills. The number of customers using heat networks is expected to grow significantly to around 20% of all households by 2030.

Whilst heat networks may have these wider benefits, the sector is not currently subject to the same regulation as other forms of energy supply such as mains gas and electricity.

The CMA is concerned that many customers, a large proportion of whom live in social housing, may be unable to easily switch suppliers or are locked into very long contracts – some for up to 25 years – and that there is a risk they may be paying too much or receiving a poor quality of service.

It will now be thoroughly examining a range of potential issues in a new market study into the sector.

The CMA is planning to examine three broad themes:

Andrea Coscelli, CMA chief executive, said: “Heat networks can play an important role in cutting carbon and keeping down energy bills for customers.

“However, we have concerns that this sector may not be working as well as it could be for the half a million homes heated by these systems now and the millions that may be connected in the future.

“That is why we’re taking a closer look at this market to ensure that heat network customers get a good deal on their energy now and in the future.”

Welcoming the announcement, Kate Morrison, energy spokesperson for the Consumer Futures Unit at Citizens Advice Scotland (CAS), said: “District heating has potential benefits to warmth, cost and carbon reduction, and the sector is set to grow significantly in Scotland. However, unlike gas and electricity, district heating is currently un-regulated, and it isn’t possible to switch between suppliers.

“Earlier this year the CAS Consumer Futures Unit called for a statutory licensing scheme for district suppliers to protect consumers as the sector expands. We therefore welcome today’s announcement by the CMA that they will investigate the heat market.

“We have consistently called for greater safeguards for consumers in this area, and we see cases relating to issues with district heating in our local CABs. These can include problems such as sudden price rises and huge unexpected bills, with no option to switch supplier.

“In our recent research, we highlighted the need for change in this market, and demonstrated how this may be done at a Scottish level. We are now working closely with the Scottish Government on proposed regulatory frameworks to ensure that the heat market genuinely works for consumers.”

The CMA will complete its study within the next 12 months. Evidence will be gathered from a wide range of stakeholders, including heat network builders and operators, other government departments, local authorities, sector regulators and consumer groups.

An interim report, with the CMA’s initial findings and views on potential remedies, will be produced within the next 6 months, ahead of the final report. Where issues of particular concern are found the CMA may take further action during or after the end of the 12-month market study, such as opening consumer or competition enforcement cases or launching a full market investigation.