Energy Price Cap: Residential Buildings with Communal Heating Systems

(Limited Text - Ministerial Extracts only)

Wednesday 20th April 2022 Westminster Hall

[The Minister for Energy, Clean Growth and Climate Change (Greg Hands)]

I begin by congratulating the hon. Member for Hackney South and Shoreditch (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 the hon. Member for Leeds North West (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 the Member for Cities of London and Westminster (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.

[Dame Meg Hillier]

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.

[Greg Hands]

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.

[Matthew Pennycook]

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.

[Greg Hands]

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.

[Mr Philip Hollobone (in the Chair)]

I call Dame Meg Hillier to sum up the debate.