District Heat Networks

Alan Brown Excerpts

Wednesday 28th April 2021 Westminster Hall

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship for the first time, Ms Ghani. You will be pleased to know that the word “resignation” does not appear once in my prepared notes.

I congratulate the hon. Member for Carshalton and Wallington (Elliot Colburn) on securing the debate; I should have realised that potentially it would relate to a constituency issue, rather than being a plug for district heating. He made his case well about the issues that his constituents are suffering, and there is no doubt that the Minister has to provide a robust response. We also heard from the hon. Members for Greenwich and Woolwich (Matthew Pennycook) and for Lewisham East (Janet Daby) about the need for a regulator and for consumer protections—that was certainly a theme common to all three speeches.

The hon. Member for Carshalton and Wallington highlighted the fact that energy from waste is causing a traffic movement issue. There is a proposed site next to my constituency where residents are concerned about movement and emissions. The point about there being no future-proofing is interesting, and it certainly seems that the local council has a lot of questions to answer. I must say that I was really shocked and surprised that it was not a Conservative council that the hon. Gentleman was laying into; he let slip at the end that it was a Lib Dem council.

Looking at the big picture for heating overall, we face conflicting problems when it comes to heating our homes. For too many people, fuel poverty is an issue, yet 85% of our homes rely on methane gas heating—a system that is cheaper than electricity and, for the most part, clearly very convenient, given that a boiler can be activated at leisure. That is illustrated by the fact that until it was recently overtaken by China, the UK was the biggest market for gas boilers in the world, but we know that cannot continue. We need to decarbonise, and we need plans, strategies and funding to get there.

The UK Government are good at soundbites and targets, but targets are meaningless without policies—for example, the target of 600,000 heat pump installations by the year 2028, from circa 20,000 a year right now. That means almost doubling the number every year from next year onwards. Without coherent policies and funding strategies to put that in place, it does not seem realistic, especially when we factor in that the installation cost for a full system is circa £15,000. Without grants or some sort of long-term route to market strategy, strong action is required for the Government to get heat pump installations in place.

The 10-point plan also has targets for carbon capture and storage from hydrogen production. We are still awaiting strategies for them, but district heating is not even mentioned in the document. In fact, district heating has not featured significantly enough in debates to date, which means today’s debate is very welcome. Looking forward, the reality is that if we are to decarbonise, we will have a rise in some form of district heating in some cases.

As far back as 2017, the then director of the Department for Business, Energy and Industrial Strategy stated that

“whatever you do you end up with 17-24 per cent district heating”,

so why does district heating lag behind in discussions and planning? It is quite clear that we need more of that. We need the heat and buildings decarbonisation strategy, as well as the Government’s net zero strategy. The Scottish Government published theirs in February 2021. If re-elected, the SNP pledged to decarbonise the heating of 1 million homes by 2030—over a third of the housing stock in Scotland—and all new homes and buildings from 2024 will use renewable or zero-emission heating. That is backed by a £1.6 billion investment plan.

Scotland is trying to reduce emissions and heating costs, and to fight fuel poverty. Compared with Westminster, we spend four times more per capita on energy efficiency, which is vital in reducing emissions. By contrast, the UK Government’s future homes standard involves eliminating the connection of new homes to the gas grid by 2025. That means that by 2024, something like 200,000 new homes will be connected to the gas grid and will then need retrofit measures in order to decarbonise at a later date.

That is not to say the UK Government have not made attempts to introduce a greater range of district heating. Some £320 million was allocated through the existing heat networks investment project, but that comes to an end in 2022, and two pilots—in Sheffield and Manchester—were pulled. What has been the extent of spend on district network creation to date? What lessons, if any, have been learned, including what we have heard today? What would the success of the green heat network fund look like, and how much of the green heat network’s £270 million is new money?

As we have heard clearly, the big issue for district heating is the fact that there is no regulator. This means that consumers in district heat networks have less security than traditional gas and electric consumers, and there is no ombudsman to receive complaints. That discourages consumers from connecting to the heat network. As we have heard, the ones who are connected have real issues trying to resolve matters.

Looking to Scotland again, the Scottish Government passed the Heat Networks (Scotland) Act in February 2021, which provides a regulatory framework to cover heat networks. What is the UK Government’s position on introducing a regulator or a regulatory framework for district heating? I hope the Minister can answer that. As the hon. Member for Greenwich and Woolwich said, the industry and the Heat Trust are trying to fill the gap with a voluntary standard, but at the end of the day it is voluntary. That belies the issue, so we need statutory protections.

We need to see greater investment in energy efficiency. What of the Tory manifesto’s £9.2 billion commitment? We need to see a coherent heat and building strategy that will deliver a suite of options. They will still need to include district heating, which the Committee on Climate Change reckons will account for 18% of heat in our homes going forward. That means ensuring a route to market for the capital cost and/or a Government funding plan.

It is interesting that the Association of Decentralised Heating estimates that energy bills for those in district heating is £100 cheaper compared with gas, so this could be a good tool for fighting fuel poverty. Again, clearly we need protections. As the hon. Member for Carshalton and Wallington said, we cannot have a closed shop where consumers start paying higher charges than they otherwise would need to.

As we look forward, there is plenty to be done. I look forward to the Minister’s response. With COP26 on the horizon, this should be our ideal platform to demonstrate a coherent, complementary heat decarbonisation strategy.

--- Later in debate ---

[The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)]

It is a pleasure to serve under your chairmanship, Ms Ghani. Let me begin by congratulating my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) on securing this really important debate. I also thank the hon. Members for Greenwich and Woolwich (Matthew Pennycook), for Lewisham East (Janet Daby) and for Kilmarnock and Loudoun (Alan Brown) for raising issues of concern in their own constituencies. As ever, I thank my friend the hon. Member for Southampton, Test (Dr Whitehead), who turns out to be an expert and an advocate on the subject of domestic heat networks—who knew? He was able to take us from Denmark to Southampton in demonstrating why they can and should be an important part of the mix. I thank to all colleagues for their contributions to the debate.

I was very sorry to hear of the troubles experienced by the constituents of my hon. Friend the Member for Carshalton and Wallington in the New Mill Quarter of his constituency. They have had really awful challenges with their district heat network. I sympathise with the difficulties that has clearly caused them all and it is profoundly disappointing to hear that their Lib Dem-run council has failed them all so very badly. I absolutely agree with the need for protections for heat network consumers. The experience of my hon. Friend’s constituents highlights the importance of the Government’s commitment to regulate the heat networks market within this Parliament.

Heat networks play and will continue to play an important part in assisting us to meet our net zero challenge. They will unlock larger-scale renewable and recovered heat sources, both energy from waste heat and heat from rivers and mines. It was interesting to hear about the geothermal heat source being used in Southampton. When deployed effectively, they can bring greater heat efficiency than individual gas boilers, lower costs for consumers and support local regeneration. However, we recognise that we need to regulate the market to ensure that those outcomes are real, for which protections for heat network consumers are needed.

As colleagues have highlighted, in 2017 the Government commissioned a survey to quantify consumer experiences with heat networks in England and Wales. The results showed that consumers connected to a heat network have generally received good service and were as satisfied as non-heat network customers, which makes the terrible experiences of those in New Mill Quarter all the more upsetting. The results of the survey also showed that, on average, a heat network consumer was likely to pay £100 less per year for heating and hot water compared with consumers on other utilities. Again, this makes it all the more shocking that my hon. Friend’s constituents have got such a raw deal from their Lib Dem council’s activities.

The Government also noted, however, a report by the Competition and Markets Authority in 2018, which showed that a significant minority of heat network consumers experienced high prices, frequent outages and a lack of transparency. Therefore, we committed to the Competition and Markets Authority’s recommendation of regulating the market and, last year, consulted on establishing a heat networks market framework.

The framework will include introducing consumer protection rules to combat cases of detriment, such as the outages being experienced by the residents of New Mill Quarter. We want heat network consumers to have comparable levels of service and protection to those using electricity and gas on individual contracts for their homes. As part of the market framework, we will introduce quality of service standards requiring notification periods for planned outages and compensation for all outages.

Consumers will have access to an independent redress scheme and a consumer advocacy body, which will provide a consumer helpline and priority services for consumers in vulnerable circumstances. The regulator will have powers to enforce price transparency, introduce guidance on fair pricing, set requirements on cost allocation and conduct investigations into heat networks where prices are disproportionately high. Finally, consumers will be provided with a minimum level of easily accessible information and guidance on heat networks at the pre-contractual stages of property transactions and during residency. There will be requirements on the provision of heat supply agreements and billing information.

We are preparing to introduce legislation to regulate the market, but, as colleagues have mentioned, there are some measures already in place to improve standards for heat network consumers. The Heat Trust provides an independent market-led voluntary standards scheme and consumers on heat networks registered to the Heat Trust benefit from terms of service similar to those in the gas and electricity markets. They can also access the energy ombudsman if they have a complaint against their heat supplier. In 2019, BEIS wrote an open letter to all heat network operators encouraging them to register their schemes with the Heat Trust and we continue to encourage schemes to sign up to raise standards now and to prepare for regulation.

[Alan Brown]

The work on the regulation framework the Minister is talking about seems well advanced, so can she give us a timescale for when legislation will come forward?

[Anne-Marie Trevelyan]

If only I could do it tomorrow, but I think Prorogation would stop me. We have also supported the Heat Networks Industry Council in its work to establish the consumer protection agreement and the heat network emergency responders group in response to the covid-19 pandemic. We encourage heat suppliers to sign up to that agreement and we have written to signatories urging them to do more to tackle outages and improve compensation standards for those outages. Although these schemes have benefited many consumers, we recognise that regulation is needed to drive up consumer standards across the heat networks market. I therefore reiterate our commitment to that regulation today, but I am afraid that I cannot give a precise date.

The Government have introduced several schemes to support heat network deployment. Our heat networks investment project has made £320 million of capital funding available for investment in heat network projects through grants and loans in England and Wales. That will be succeeded by the green heat network fund in 2022, which will support and incentivise the use of low-carbon heat sources in heat networks. Both investment projects will ensure adequate consumer protection measures are in place by requiring projects to demonstrate Heat Trust or equivalent standards, which will ensure that taxpayers’ money supports only heat networks that deliver fair pricing and which are well designed, efficient systems.

Furthermore, we have been carrying out work on improving performance across a number of existing heat networks. That provides an evidence base for the development of the heat networks efficiency scheme, which will part-fund operational performance improvements and carbon emission reductions in existing systems. Further details will be announced later this year.

It is essential that heat network consumers are provided with clean and reliable heat at an affordable price. As such, we are developing the heat networks market framework that will place consumers at its heart, deliver sustained investment in the sector and maximise heat networks’ potential economic and environmental benefits. We committed in the energy White Paper to legislate for the market framework by the end of the Parliament.

We are working closely with the industry and consumer groups to ensure that regulation delivers positive outcomes for consumers, and we will shortly publish the Government’s response to last year’s consultation. I look forward to working with all colleagues on the proposals that we will bring forward. In the meantime, I wish my hon. Friend the Member for Carshalton and Wallington and his constituents well as they seek redress from their council, whose failure to meet the standards that residents could have reasonably expected is motivation indeed for the Government to get protections in place.