Energy Price Cap: Residential Buildings with Communal Heating Systems

Drug Crime – in Westminster Hall at 5:24 pm on 20th April 2022.

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Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee 5:24 pm, 20th April 2022

I beg to move,

That this House
has considered the energy price cap and residential buildings with communal heating systems.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I should declare an interest, as I live in a leasehold flat in a block with a communal heat network. I also represent a constituency with one of the highest numbers of multiple dwelling blocks in the UK, a number of which have community heat networks.

The problem is very simple. I think I should lay that out, and then I want to lay out what I am asking the Government to do and hope to get a positive response from the Minister. Quite simply, we all know about the cost of living crunch and the increased price of energy bills, and of course the Government have put in certain measures to try to mitigate that, but constituents who live in residential buildings with communal heating systems—also known as heat networks—are not protected by the energy price cap as other energy purchasers are.

Photo of Janet Daby Janet Daby Labour, Lewisham East

In my constituency there are many Barratt homes that have district heat networks and I have continually raised that issue in Westminster Hall and on the Floor of the House. Does my hon. Friend agree that it is even more important that the Government introduce regulation to put protections in place for residents where they have these heating networks, given the fuel crisis experience that the country is going through and the increases in fuel costs?

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

My hon. Friend is absolutely right. About half a million people, as an estimate, live in such blocks—not only new developments such as those that she has highlighted, but some older developments that would take a lot of retrofitting to get individual heating systems in place; but that is not the answer and I will come to that in a moment.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

I thank the hon. Lady for securing this debate. She is right, and such bodies as Ginger Energy have highlighted that domestic customers of communal heating networks should be included within the energy price cap’s protection. The Government were committed to introducing legislation. This affects some 14,000 heat networks in Great Britain—2,000 district heat networks and 12,000 communal heat networks. Half a million customers suffering, half a million homes unheated, half a million reasons for us to take action. Does she agree?

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

The hon. Gentleman is absolutely right. When I get to my asks of the Government, I shall be very clear, as the hon. Gentleman and the hon. Lady have highlighted, that the issue has been raised in the House before—indeed, it has been raised since 2018. I will get on to the timeline, and my question to the Government is this: we know about this, so why is it taking so long to resolve it?

The key issue is quite a simple definitional issue: the energy price cap sets a price limit on domestic supplies of electricity and gas, but not on domestic supplies of heat. So developments of the type that my hon. Friend Janet Daby referred to will often have wood-chip burners or an equivalent in the basement, or some other source of supply, and they provide heat to the home, but it is purchased for the building and then sold on to an individual. Ofgem, as we know, regulates the supply of gas and electricity but not, at present, the supply of heat. That means that while the supply of gas to a heat network is regulated, the supply of heat from the heat network to homes is not, because Ofgem classifies supplying heat to a heat network as a commercial arrangement, not domestic. But let us be clear: the end user of this is someone living in a home—a flat, an apartment—who benefits from the communal heating system, often arranged for good reason, sometimes in an attempt to provide green energy, but it has actually left individual residents, whether they are homeowners or tenants, in the lurch.

Photo of Rushanara Ali Rushanara Ali Labour, Bethnal Green and Bow

I want to cite an example. There are many such cases in my constituency. A junior doctor who wrote to me said that her heating price went up by a staggering 400% and every day she has to pay an additional £7 a day. She wrote to me in the winter, in December, because of this policy, and up to half a million people are affected. This is not a difficult thing for the Government to address—to make sure that the regulator can encompass heating in this form so that they are protected—so I hope the Minister will address it and will have some good news for us today.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

My hon. Friend highlights another important point, which has been mentioned by other hon. Members—that of course the individual, the resident, gets a bill that is directly related to their property, to their energy use, so it is very personal, yet that is seen as a commercial supply and clearly it is not; it is about someone living in their home.

One of my constituents, based in the East Wick and Sweetwater development, has their heat supplied via a heating network from East London Energy. From April, this month, East London Energy is increasing its usage fee by 103%, and other Londoners on heat networks are reported to see price increases of over 700% in the worst cases.

The National Housing Federation, which has a lot of these properties in a portfolio of housing associations generally but represents housing associations at a national level, says that around 150,000 of the people affected are housing association residents. These are people on lower income, of course, but we also know that there is a strong correlation particularly between new tenants of social housing and the ability of a household to pay.

Peabody, a large landlord in my constituency—obviously it is also a housing association—has 172 operational heat networks across its whole portfolio, and it says that in general the price of energy has increased by over 300% since April 2021. Peabody has managed to mitigate up to a point by buying multi-year deals from its supplier. However, that is not universal and clearly it does not always help, because it depends at what point in the market the energy is bought. There are 32 of Peabody’s operational heat networks that cover over 100 homes each, so these are quite large scale. Someone could live in a development next door to a person in another development; one could benefit from the energy price cap while the other, by accident of housing allocation, bought a property with a communal heat network, not realising what the consequences would be. We would not have predicted that the energy prices would have increased so much. Nevertheless, that is the problem now.

What has been happening? In 2018 the Competition and Markets Authority conducted a study that concluded that the market should be regulated. Here we are in 2022, with energy bills having gone up in April and going up again in October—considerably. In December of last year the Government, as part of their response to the heat network’s market framework consultation, published proposals to regulate the heat network sector. It is a welcome move but it has taken a long while to get there. I am sure that the Minister is aware how pressingly urgent that is for people, particularly those on low incomes who are crippled by the extra costs they are having to pay.

The Government tell us that they are committed to introducing legislation in this Parliament, so it would be helpful if the Minister could indicate when that might be—he will get my wholehearted support if it is in the Queen’s Speech. He might get a quick win; he can sell it to the business managers in Government as something that he can get through quickly with little opposition, if he does it well. The Government also intend to appoint Ofgem as the heat network’s regulator, and they have already highlighted that Citizens Advice could be the consumer advocacy body. A lot of pieces of the jigsaw are beginning to come together, but we need to know when it is going to happen.

I am not alone in asking for regulation: the Heat Trust has called for it to happen; the Business, Energy and Industrial Strategy Committee, as part of a recent report on decarbonising energy, called for heat networks to be regulated; and crucially, it is in Ofgem’s forward programme for 2022-23. It could stretch out for quite a long time to come, but that is not fast enough for those residents who are sorely affected.

The Government need to make faster progress. In the meantime, there are a couple of things they might consider. I would be interested to know whether the Minister has considered these things, given that the Government have professed their desire to support households and insulate them against energy bills. The National Housing Federation has called on the Government to provide targeted financial support for housing associations—the 150,000 residents I mentioned earlier—that covers the expected rise in energy bills. We have had a rise in April, but there is an expected rise coming in October as well. It would be for those who are not protected by the energy price cap, to create a level playing field for residents of the same landlord who often have very different energy bills. It could be a dedicated hardship fund; there is precedent for that during the covid pandemic, when local authorities managed similar funds. Although the Public Accounts Committee has not looked into it in full, those funds had quite good assurance procedures to ensure that the money was targeted. I think some has even been returned to the Treasury—not for energy, but for other hardship. There are also existing schemes that could be extended.

All individuals have a bill that comes, so there is an easy way of attaching the cost to the household to the household’s name. There must be a creative way that the Government could look at as a stopgap while the more detailed work is done. That also highlights the constant need, which I want to reiterate again, for insulating and retrofitting homes, because some of those heat networks are in quite old buildings and it is a real issue.

All of those solutions we would like to see instantly, of course, but my simple ask for the Minister today is that some of the most vulnerable customers need support right now. Someone like me can manage. It is the people who really cannot, and who are going to have to choose between eating and heating—the extra £7 per day highlighted by my hon. Friend Rushanara Ali—that are the real concern. I hope the Minister can give us assurance not only that this is being looked at, but that we are going to get action sooner rather than later.

Photo of Nickie Aiken Nickie Aiken Conservative, Cities of London and Westminster 5:34 pm, 20th April 2022

It is a pleasure to serve under your chairmanship, Mr Pritchard. I start by thanking Dame Meg Hillier for securing this important debate. I declare an interest: I live in a building that has shared heating, although I do not have that shared heating—I have my own heating system. We are all affected by the increase in energy prices. However, it is being most keenly felt by those who are not protected by the energy price cap because they live in apartments within buildings served by heat networks. Indeed, those affected are now facing, or are due to face, a staggering increase of around 300% in their heating bills. It is incredible how many people in Cities of London and Westminster and constituencies like mine are affected because their buildings, whether mansion blocks, social housing blocks or new, larger developments, are part of heat networks. I can assure you, Mr Pritchard, that this is a very real issue for my constituents.

Many have outlined the positives of such heating systems, and while I appreciate the potential of heat networks and the fact that many blocks are commercial enterprises with their own targets, their end users are ultimately residents, not businesses. Those residents, through no fault of their own, are fully exposed to extreme market changes, with little recourse to any help. This cannot be left for any longer. Right now, Europe faces its worst energy crisis since the Arab oil embargoes of the 1970s. In turn, consumers and landlords operating heat networks are consistently reporting extreme examples of energy price rises to me. Figuratively speaking, people whose homes have communal heat networks are being charged up to four times their previous energy bills, purely because their building has one communal heat source.

It is for that reason that I was grateful to meet recently with the Minister in the Lords, Minister Callanan, alongside my hon. Friend Felicity Buchan, to discuss these issues for central London in more detail. It was a very interesting discussion, made all the richer for having some of our constituents in attendance to speak directly with the Minister about how difficult it is for them at the moment. I thank Richard Cutt and James Wright for their time representing Cities of London and Westminster on this matter. It was promising to hear from the Minister that the Department for Business, Energy and Industrial Strategy is considering looking at options to legislate for Ofgem to be given powers to intervene when prices are significantly higher for consumers. I would welcome such powers, which would go a long way to protect residents in buildings with communal heating.

That said, the question that remains is how long it will take for legislation to resolve the issue. As I have said, I have spoken to those affected, and I do not think residents can afford such a long lead-in time for the relevant laws to come to fruition. I appreciate that we need to wait for the Queen’s Speech, which I hope will contain the much anticipated energy Bill. However, even if we prioritise that Bill, we will only see results on the ground within a year or two. After all, BEIS will need ample time for policy development. We would then legislate for transparency on costing, so that we can see what organisations are paying and Ofgem can then make sure that consumers are not ripped off, so there is a huge time lag in this.

Photo of Sharon Hodgson Sharon Hodgson Labour, Washington and Sunderland West

The hon. Member is making an excellent speech. In my constituency of Washington and Sunderland West, I have over 1,000 properties attached to one of these heating systems, and they do not benefit from the energy price cap or anything like that. I agree with her that the Government need to bring forward that legislation, but in the meantime those people need help now, as she is saying. Does she have any suggestions for what that help could be from the Government?

Photo of Nickie Aiken Nickie Aiken Conservative, Cities of London and Westminster

I hope that the Minister might address that very well made point. We can live in hope.

Through all the good and necessary steps that the Government are taking to protect consumers through the energy cap, the timescales are quite difficult for our residents who are facing the cost here and now. It will be interesting to hear what the Minister has to say about what help, if any, can be given to those on heat networks now. I hope that if there is a consultation and it is a quick one, it will also throw up lots of secondary concerns. For example, how can we address the detail of meters? Can any price cap in this area take into account different monitoring systems as technology evolves? Can we have a cap on the wholesale price for consumers as well as domestic users with a single supply? It is not an easy task to resolve this.

Right now, we in Parliament need to ensure that there is interim support that takes into account the nuances of those locked into heat networks—they are literally locked into this. Indeed, I was concerned to hear reports from some of my constituents who are currently excluded from the otherwise comprehensive package of support being offered by the Treasury, precisely because they are on a heat network.

I am sure that the Minister will be relieved to hear that I do not think that a solution will necessarily require more money. We just need to ensure that Government support is allocated fairly and takes into account the complexities of people locked into heat networks with no price caps.

I hear time and again that transparency is key to resolving this matter, and right now I am concerned that Ofgem does not quite have the capacity to target the support that is needed to residents who are affected. In fact, that was brought up in the responses to the Government’s “Heat Networks: Building a Market Framework” consultation. It seems that some of those previous concerns are now transpiring, and I suspect that we are seeing the additional complexity of a top-down approach when the market really requires a bottom-up approach.

To conclude, I hope that the Minister can address a few of the concerns that I have mentioned. I know that the Government are committed to making heat networks a key part of their energy policy. After all, heat networks have the potential to offer low-cost, low-carbon heat. But without intervention now, hundreds of thousands of families are facing horrendous and unaffordable heating bills. What is important here and now is that we must not leave families living on these schemes behind.

Photo of Mark Pritchard Mark Pritchard Conservative, The Wrekin

I do not wish to impose a hard time limit, but quite a few Back Benchers would like to contribute and we would like to hear everyone if possible, so I would be grateful if Members could practise self-regulation and stick to about four minutes if possible. I call Rushanara Ali—[Interruption.] You are on the list. Okay, you have withdrawn. I call Sharon Hodgson—[Interruption.] Well, you are on the list. We are going to go home earlier; that is fine by everybody, I am sure. I call Janet Daby—[Interruption.] You are on the list as well, but that is fine. Siobhain McDonagh, I know you will want to speak.

Photo of Siobhain McDonagh Siobhain McDonagh Labour, Mitcham and Morden 5:43 pm, 20th April 2022

Thank you, Mr Pritchard. Anyone would say that I was garrulous after those comments.

I thank and congratulate my hon. Friend Dame Meg Hillier on bringing forward this really important debate. For households across our country, the cost of living is soaring. We have seen the biggest tax hike since the 1940s, the largest drop in living standards since the 1950s, public sector net debt reaching the highest level since the 1960s, and real earnings growth facing the largest one-year drop since the 1970s. Rising inflation, a hike in national insurance, and rocketing energy costs are putting unprecedented pressure on the pockets of hard-working families in all our constituencies.

However, as we have heard, approximately 150,000 housing association residents have heating and hot water delivered to their home via a communal or district heating network, rather than an individual boiler. Their way of paying energy is not regarded as domestic but business use. When it comes to energy payments, some might call them non-doms—perhaps we had better not go there. The Ofgem price cap does not protect those residents, so housing associations face the prospect of either absorbing soaring energy costs or passing them on to tenants and leaseholders.

This issue was first raised with me by my constituent Mr Johnston at the beginning of the year. He was worried that the lack of price cap protection and the soaring costs of energy may mean that he and his neighbours at Sadler Close in Mitcham could face an up to tenfold increase. They currently pay an estimated cost, with leaseholders paying through service charges and tenants through their rent. Mr Johnston lives in a Clarion-owned housing block and, despite my recent criticism of Clarion, I was delighted and relieved to learn that it has a commodity-capped agreement in place with its energy provider for another two years, so tenants and leaseholders will experience little increase, if any, in their gas charges. I am, of course, concerned about what will happen in two years’ time.

Right now, however, other tenants in similar situations will not be as fortunate. On 16 February, I wrote to the chief executive of Notting Hill Genesis regarding the Meadows estate on Mitcham Common to seek clarity that my constituents in those blocks would not face the same issue. Given the urgency of the energy price rises, I had hoped for a speedy response but, unfortunately, two months later I am still awaiting a reply. Even if those tenants are fortunate, thousands of others will not be.

The problems of unregulated energy supply are threefold. First, the monopoly of supply means that customers in shared blocks may be locked into long-term contracts with no way of holding suppliers to account on quality or price. Secondly, there is a lack of transparency. Residents often do not know that their energy will be supplied by a heat network. I took it upon myself to share the Clarion information outlined earlier in my speech with my constituents, fearful that many of them may not be aware of the impact of energy costs on their income. Who would have thought that a letter saying that their energy prices would be the same for two years could be heralded as such brilliant news? Thirdly, higher ongoing operating costs caused by property developers trying to cut the up-front costs of installing a network may simply result in higher costs for customers.

Minister, we need to examine the cost increases faced by residents in shared blocks and consider who has been hit disproportionately. We need to look at the regulation of energy costs paid in this way and quickly, because the clock is ticking towards the next big price hike in October. Warm words will not ensure warm homes, and without action the problem will get worse very quickly.

Photo of Mark Pritchard Mark Pritchard Conservative, The Wrekin

Do we have any other takers?

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Levelling Up, Housing, Communities and Local Government) 5:47 pm, 20th April 2022

I will be incredibly brief—I think we will be voting shortly—and will pick up on a couple of points made by others in this debate. I have been raising issues about the lack of consumer protection for customers of communal heat networks since I was elected in 2015. It is a very long-standing issue, and there has been a tangible lack of progress in addressing it.

The first issue is the statutory regulation of the sector. We have come a long way. I remember raising this matter when I was a member of the Select Committee on Energy and Climate Change before the Department was abolished, and Ministers would tell me that statutory regulation of the sector was not required, that introducing it risked strangling an emerging industry at birth and that they were not going anywhere near it. I remember asking the CMA—[Interruption.]

Photo of Mark Pritchard Mark Pritchard Conservative, The Wrekin

Order. I have to suspend the sitting for a Division, and I understand that we will be having a lot of them. The first suspension will be for 15 minutes, but it will be 10 minutes for subsequent votes. If Members could make their way back a little faster after the final vote, we can get off to a quick start.

Sitting suspended for Divisions in the House.

On resuming—

[Mr Philip Hollobone in the Chair]

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering 8:30 pm, 20th April 2022

The sitting is resumed. Our new finish time is no later than 9.10 pm.

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Levelling Up, Housing, Communities and Local Government)

Thank you, Mr Hollobone. As I was saying, I recall asking the Competition and Markets Authority to carry out an area of investigation study into this sector. As the Minister will know, the CMA eventually carried out a market study, which recommended statutory regulation. We then had the “Heat Networks: Building a Market Framework” consultation, which closed in June 2020. We had the Government response in December 2021, but no sign of any legislation.

All I will say to the Minister is that this is an issue that has become incredibly pressing as a result of the energy crisis but, as I have said before, it predates that. For a range of reasons, we need to see statutory regulation as a matter of some urgency and I hope that he can give us some sense that in the next parliamentary session time will be found for it.

This is a pressing issue now, as a result of the energy crisis and the pressures that households are consequently facing. It has already been mentioned by several speakers that, as commercial contracts, these heat networks are not covered by the default tariff Act. Therefore, customers who source their energy from heat networks are not protected by the energy price cap.

That is a serious problem because, as others have said, customers who get their heat from these networks are experiencing shockingly high price rises. I recently wrote to the Minister about one case that is illustrative of what is happening in numerous buildings in my constituency. I have a huge number of buildings that are affected, because of the number of new build properties constructed over recent years, whether that is the Royal Arsenal in Woolwich, Enderby Wharf in east Greenwich or the Greenwich Millennium Village. All of them are facing the same problems.

I put to the Minister a case from the Paynes and Borthwick development in my constituency, where the unit energy charge on the development has gone up by 367%. I repeat: 367%, uncapped. Residents are really feeling those increases in their bills. We need the Government to step in and provide an immediate stop-gap solution for these customers, because they cannot handle the increases in the bills that they are experiencing.

Ultimately, I want to see the energy price cap extended to these customers. I realise the difficulties that would entail, in potentially driving more small energy suppliers out of the market, which we do not want to see. However, it is really for the Government to find a way to support those suppliers if they were to bring in such a price cap.

If the Government are not willing to go there, they need to look at targeted support for these consumers because, as things stand, the warm home discount, the energy bill rebate and the household support fund—where it applies—are not enough to help them to cope with rises of the magnitude that we are seeing. Minister, please ensure that we get legislation, so that the sector is put on a proper regulated footing as soon as possible. However, in the short term, please do something for these consumers, because they are really struggling with these increases and they need help now.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

We now come to the Front-Bench speeches.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Climate Change and Net Zero) 8:33 pm, 20th April 2022

I will try to be as brief as possible and I will also try to recall, from what seems like an entire Session ago, the discussion that we had earlier this evening and the valuable contributions that hon. Members made to it.

Of course, I congratulate my hon. Friend Dame Meg Hillier on securing this debate in the first place and indeed on bringing to our attention the real issues of regulation, price and redress that exist in the heat network system.

Before I go any further, I will say that heat networks are a good thing. They are not just a substantial part of the Government’s plans for future decarbonisation of our heat systems but provide—or should provide—a cheaper deal overall as far as heat is concerned for those who get their heat through them. Also, of course, the networks themselves are not necessarily dependent on gas. A particular network can have any particular fuel—for example, as I have said on several occasions, Southampton heat network is fuelled by geothermal means—so it is not necessarily the case that gas goes into the networks. However, it is a fact that the vast majority of the 14,000 networks, either communal or district, are gas-fuelled and will probably continue to be so for quite a while.

This afternoon, hon. Members have emphasised the imperative of getting the whole system regulated properly for the future. It is a bit of an anomaly that this area of heat and power supply, unlike pretty much anything else in the system, remains unregulated. That does not mean that every network is a rogue organisation trying to do the worst thing for its customers; indeed, most heat networks do a very good job.

However, it is essential that customers have access to the proper redress that they have by other means through the regulation of the wider energy network, particularly because energy networks of these kinds do not have the option of exit. They are run on an entirely different basis, which is quite right—there cannot be an individual exit from a collective system—but customers should have a voice. They should have the ability to get a good deal, and arrangements for redress and putting it right if they do not get a good deal. I am afraid there are energy networks that run their systems very inefficiently, put their prices up without proper justification, or do a range of other things that we would expect a regulator to intervene in and put right. The question of regulation is an imperative foundation for the expansion of energy networks, district heating networks and so on that we expect to see over the next few years, as well as putting right a number of the wrongs that are already in the system.

Members have already mentioned how long the Government have taken to get the idea of regulation properly on board. I am pleased that after the CMA inquiry, the Government’s original proposals for consultation, and the response to that consultation—which took over a year to come in—the Government have now committed to proposals in regulation within this Parliament. I am anxious to hear from the Minister what is meant by that. I emphasise, as I have on previous occasions, that we just have to get on with it: we have to do it now, as soon as possible. We have done all the consultations, so there is now no impediment to getting that regulation on the statute books other than ministerial clout and will to make room for this in legislation as soon as possible. I hope the Minister will be able to enlighten us about what will come forward in future.

Of course, the other part of the regulatory process is that because these systems are not regulated, they are not covered by the price regulation that covers the rest of the system at the moment through price caps and so on. When it comes to deciding how we can give customers the benefit and protection of a price cap in a way that is at least partly similar to the rest of the market, we have a particular problem with the difference between the regulation of the system as it stands and the regulation of other systems. That is because the district networks that supply the heat are effectively all miniature energy retailers, in as much as they buy their gas—mainly—on the wholesale market, and then supply the heat as a result of the purchase of the gas, and obviously the purchased gas prices then go through to customers.

If, indeed, we had a price cap regime, without any other activities going on behind it, we may well see a whole series of those miniature retail energy companies collapsing due to being unable to make up the difference between what they were required to pay—as far as the gas prices are concerned—and the price they could charge to supply that heat. They would not be able to balance up their purchase costs.

More would need to be done, in terms of a price cap arrangement within regulation, given the present volatile state of the gas market, and the unlikelihood that prices will fall in the near future. At the very least, it would need a Government arrangement for pooled purchasing of gas by those district network operators, or, perhaps better still, some form of purchase price cap, allowing the wholesale purchased gas to be supplied to the networks at a reasonable and stable rate over the next period.

I think we may well have wider debates about how that works for the market as a whole, but this is one area where we must be clear. An intervention is needed to protect those 500,000 people on district heating networks from the consequences of the volatile gas market for the future, and also to protect those people who are running those heat networks from the consequences of a one-sided price cap. We must appreciate that they operate in very different ways to the rest of the energy market, and need different protections to ensure that they are fit for purpose now, and are available for the future. We will certainly need them to operate effectively within the low-carbon economy, and to provide the low-carbon heat that we all know is desperately needed as we decarbonise our energy systems as a whole.

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy 8:42 pm, 20th April 2022

I begin by congratulating Dame Meg Hillier on securing this important debate. I apologise, Mr Hollobone, for having been late for the debate, which now seems some time ago. I think it is the first time, in the 17 years I have been in the House, that I have been late for a debate. It may seem a bit academic, at 8.43 pm, to apologise for being here at 5.25 pm instead of 5.24 pm, but I apologise none the less. I was a guest speaker in the Boothroyd Room for the Net Zero all-party parliamentary group, with Alex Sobel, but I of course apologise—as you know better than anybody, Mr Hollobone, Westminster Hall always takes precedence over APPGs.

I congratulate the hon. Member for Hackney South and Shoreditch on securing this debate. I noted that there were, I think, seven London MPs here, and all of the Back-Bench contributions were from London MPs. My own constituency, of course, is also very affected by this issue, as are other inner-city constituencies. They tend to be the places where district heating networks occur, so it is very much an issue for my constituents as well.

This Government recognise and understand the pressures people are facing with the cost of living. This is of course a deeply worrying time for many of our constituents, and for many their fuel bill is perhaps their biggest concern. We know that the war in Ukraine and the recovery from covid-19 have driven up wholesale energy prices, and no Government can control the global price of gas. UK consumers, like many others, are now feeling the effects of that in their energy bills.

Turning to some of the points raised, the hon. Member for Hackney South and Shoreditch asked if we would consider a targeted fund to help those in heat networks. She will know that the Chancellor announced an additional £500 million for the household support fund at the spring statement, which will go towards those in hardship, including heat network customers. There are other measures in place to support vulnerable bill payers.

My hon. Friend Nickie Aiken asked if we could improve the installation of meters. We introduced revisions to the Heat Network (Metering and Billing) Regulations in autumn 2020, which required a significant expansion in the heat networks required to install heat meters, with an additional 84,000 customers receiving heat meters over the following four years.

The hon. Lady also asked whether we could install a price cap on wholesale prices being used by heat networks. When we introduce new legislation, we will consider all options on price regulation. I will come back to other points raised by hon. Members.

Our energy price cap insulates millions of customers from volatile global gas prices, but I recognise that, with heat networks not being covered by the price cap, they are more exposed to those increases. That means that a significant minority of customers on networks are seeing price increases that are far in excess of price cap rises. As commercial purchasers of gas, heat networks can ordinarily purchase gas at cheaper prices than individuals, which I think one or two hon. Members drew out. I do not think it is fair to characterise heat networks as being exploitative practices. In fact, they generally render cheaper bills on average. However, without the price cap in place, when the price rises come in, if customers are used to paying a lower tariff, they are likely to be more affected. That ability, which is beneficial when prices are low, is leaving many more exposed to the current price increases, because the prices that customers were used to paying were lower.

To provide immediate support to consumers, including those served by heat networks, the Government have provided, as we know, a £9.1 billion energy bill support package. That is in addition to increases in universal credit, the warm home discount and a £200 discount on energy bills. All households in bands A to D in England will also receive a £150 rebate on their council tax, which will not have to be paid back.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

I would just point out to the Minister that, while any support on energy bills is welcome, and band A to D households are the focus, many people caught by this issue in my constituency, and I am sure in his, are living in properties in significantly higher council tax bands, but that does not mean necessarily that they are wealthy households by any means.

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

Yes, the hon. Lady is absolutely right. Her constituency, and mine probably even more so, will have people in exactly that category. That is why the Government also provided £144 million in funds to local authorities to help those vulnerable customers who do not live in band A to D properties—either they live in a larger property or they do not pay council tax at all. That £144 million fund is available for local authorities to help those who do not fall into the £150 council tax rebate.

We provided a total of £1 billion funding through the household support fund, enabling local authorities to support—on top of that—the neediest households with the cost of living, and all that support will help people in the short term. Clearly, in the long term, we need to see a more sustainable regulatory system for heat networks. That is why the Government have committed to introducing legislation within this Parliament, which will see Ofgem regulate the heat network industry. With Ofgem having regulatory powers over the heat network industry, legislation will secure fair pricing for all heat network customers, as well as ensuring that heat network operators secure the best possible purchasing deals for their customers. Ofgem will also have powers to investigate and intervene when networks appear to be charging customers disproportionate prices.

Heat networks are part of the pathway to decarbonising heat. By operating at scale and, in some cases, by making use of waste heat sources, heat networks can supply heating more cheaply than individual gas boilers. The study commissioned by my Department in 2017 found that heat networks supply heating at a discount of £100 per annum on average compared with individual gas boilers—it is literally a case of economy of scale.

Photo of Matthew Pennycook Matthew Pennycook Shadow Minister (Levelling Up, Housing, Communities and Local Government)

The Minister will be aware of the serious problem of standing and capital replacement charges on many privately owned networks, and that problem continues while consumers on those networks are seeing increases in their unit energy price. I hope that he agrees that that must be tackled, because although tariffs can be well out of kilter and not provide the fair deal he is talking about, which I concede is the case in many schemes, standing and capital charges rise significantly year on year, placing an additional burden on consumers.

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

I thank the hon. Gentleman for his intervention, and I am very happy to look into that. I will speak with my ministerial colleague Lord Callanan, and perhaps he or I will write to the hon. Gentleman about what has been going on with standing charges on heat networks. It is a fair question and I will get back to him on it.

To conclude, I reiterate the Government’s commitment, first, to providing short-term support to those struggling with energy prices and, secondly, to making the necessary long-term changes to improve the heat networks market and make the UK energy-independent at the same time. The heat networks market is a key sector for our green ambitions, but it must also deliver for consumers daily, so we will continue to ensure that prices are as fair as possible.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee 8:51 pm, 20th April 2022

Thank you very much, Mr Hollobone; it is a pleasure to serve under your chairmanship—hours have passed between the beginning and the end of the debate.

In many respects, the Minister summed up the feeling of colleagues present. It is instructive that a lot of London MPs were present for the debate. For all the talk about levelling up and about other areas of the country being poor, the cost of living in London is very high, and those on average incomes who live in properties with energy supplied by a heat network are doubly hit by the challenges of energy prices.

I am pleased that the Minister has reiterated that the Government are going ahead with long-term change. I am keen, and will continue to push, for additional support to be provided to those consumers because of the extremely large increases in their bills. The fact that local authorities are expected to use the hardship fund to support households is an important point, because that will be an extra drain on local authority budgets in constituencies and boroughs where lots of residents live in such properties. I undertake to do some more number-crunching in my constituency.

Photo of Meg Hillier Meg Hillier Chair, Public Accounts Committee, Chair, Public Accounts Committee

I see that my hon. Friend is nodding. I think we will come back to the Minister on that, because that money should be distributed in a way that recognises that those households and vulnerable customers are hit hard by the additional high costs and really need support right now.

I thank the Minister and the shadow Minister, my hon. Friend Dr Whitehead, for their responses, and I thank all colleagues who have been supportive, including those who were unable to attend today.

Question put and agreed to.

Resolved,

That this House
has considered the energy price cap and residential buildings with communal heating systems.

Sitting adjourned.