Low-carbon Off-gas Grid Heating

Drew Hendry Excerpts

Thursday 16th June 2022 Westminster Hall

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Christopher.

I, too, congratulate the right hon. Member for Clwyd West (Mr Jones) on securing this debate in Westminster Hall today, because he has brought forward yet another aspect—something that needed to be highlighted—about a growing crisis for people living in off-gas grid areas regarding the need to adjust for the future. Having said that, there are other issues for them right now, which are causing them great difficulty; I will reflect on that in a moment or two.

The right hon. Gentleman talked about the need to address rapidly some of the issues in the heat and buildings strategy, with rural businesses having to act by 2024 and hospitality businesses by 2026. There are really tight timescales for those involved, given the circumstances that we face just now. He also rightly talked about the cost of insulation being out of reach for many homes and businesses.

UK Government support is inadequate; the right hon. Gentleman referred to a maximum of 90,000 households being eligible and there is no support for energy efficiency within that. He is absolutely right to call for far greater ambition in that regard. Low-carbon heating and buildings can help significantly in tackling both the climate crisis and the spiralling costs for families, but first they actually need to exist.

The hon. Member for Ceredigion (Ben Lake) talked about the rural properties occupied by families who are really struggling just now, with 45% of households in Wales in fuel poverty, which is a shocking figure to have to think about at the moment. The worst thing about that figure, which is replicated in other rural communities across the nations of the UK, is that it will get worse. That is just the fact of life that we face at the moment. It is also why the UK Government need to take more action, both to address the long-term issues and to help people in the short term.

The hon. Gentleman also talked about the affordability issues, as did the right hon. Member for Clwyd West, and the impact on rural businesses, some of which are being hammered just now; these are successful businesses that are off-gas grid, but they are being hammered by increasing costs. If these businesses are struggling with bills at the moment, where on earth do they find the money to invest in changing to new technology, if there is not more support, which is what the Minister must come up with now? The hon. Member for Ceredigion rightly asked how we can support people and businesses to weather the current storm. It is worth pausing to consider the fact that inflation is now at 11%. This is an absolute crisis that we are in just now.

The hon. Member for Buckingham (Greg Smith) pointed out, absolutely correctly, that the efficiency of heat pumps relies on high-standard insulation. However, in rural communities—this was a point well made—buildings are often older, draughtier and not perhaps the ones that can best cope with new technology. And all the people who live in those buildings and all the businesses that operate in such buildings face a crisis, right now as well as into the future. The hon. Gentleman also talked about drop-in fuels; that is another issue that needs further debate, but I come back to the fact that these things still involve a high cost, and there is a current crisis.

The hon. Member for Strangford (Jim Shannon) talked about options being very limited for those who live in countryside areas, which is absolutely bang on the money, and is also true for businesses. A theme is building here, which the Minister and his Government will have to address: this is a growing crisis for all these people. As the hon. Member for Strangford said, Ministers should have the answers, and we need to hear those answers. We need to know what the Minister is going to do, because the hon. Gentleman was absolutely right that hoping that costs will come down is just fantasy; it is not going to happen, so what will be done to address these average costs of £12,000 that we have talked about, or even higher—£30,000? The hon. Gentleman said that we must do more to support people through the transition. We should not only be doing more to support people through that transition, but doing more to support them right now.

I am pleased to be summing up this debate for the Scottish National party, because I tabled a ten-minute rule Bill in recent months dealing with the issues that people in off-gas grid areas are facing at the moment. We need measures across the piece to ensure that households do not have to pay more for their energy because they do not have access to a mains gas supply. The current price cap introduced by the UK Government and Ofgem is based on the assumption that households across the nations of the UK consume energy with a split of 80% gas and 20% electricity. However, that is not the case in rural areas, where if people cannot afford the fuel oil or to have the LPG on, they are using more electricity—they are using more electricity anyway, because they have to.

Across the nations of the UK, one in six households are living off the gas grid, not just those in rural areas; we must be aware of those figures. The rise in fuel costs that those people are facing at the moment is more than twice that of those on the gas grid. If we treat the average household as having to pay £2,000 per year now —as we know, it will be more—those off the gas grid will have to pay £4,416, according to the most recent calculation. Again, that figure is probably out of date; it has probably gone up as inflation rips through the economy. Rural areas have higher transport costs, higher costs of living, older properties and lower than average incomes.

I have to ask, because I have the opportunity to do so, what is the point of a UK energy regulator that is not regulating for people who live off the gas grid? That deficiency has to be challenged by the Government; I know they will lay the blame at Ofgem’s door, but the Government can do something about it as well. We need an urgent review of regulated energy prices and an end to the discriminatory system for people who are off the gas grid.

The Climate Change Committee said recently that it is still disappointing not to see more energy efficiency, or support for households to make changes that can cut their bill. The UK Government have fallen short in that area time and again. As has been pointed out, they can do a lot more to help people, such as by using some of the additional VAT they are getting in or cutting VAT. The Scottish Government have helped 150,000 households that are either in, or at risk of, fuel poverty, and Scotland is way ahead of England when it comes to spending per capita, spending £27 on insulation as opposed to £8. This UK Government need to do more, and I look forward to hearing from the Minister whether he will take action to address these problems—not only the future problems that people off the gas grid will face when they have to make these changes, but the current problems that people are facing across rural areas in all the nations of the UK—problems that are deeply affecting them, their families and their businesses.

--- Later in debate ---

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

I congratulate my right hon. Friend the Member for Clwyd West (Mr Jones) on securing this important debate. I reassure him that decarbonising heat remains a key priority. We recognise that this is a deeply worrying time for most of our constituents, for whom the impact of rising energy bills is perhaps the biggest concern. That applies as much to rural communities as to any other.

I commend my right hon. Friend for his long-standing work as one of the key voices for north Wales ever since we were both first elected in 2005. At the time, he was the first Conservative Member to be elected in north Wales in about eight years, and he has consistently stuck up for his constituents ever since.

We are taking action on bills. The Chancellor recently announced a £15 billion package—as part of an overall £37 billion this year—to help families who are struggling with their bills. However, as we set out in our recent British energy security strategy, which was launched by the Prime Minister and the Secretary of State in April, if we are to keep prices down for ordinary households and businesses for the long term, we need to rely on affordable, clean and, above all, secure sources of energy.

Off-gas-grid households and businesses already understand those challenges as well as anyone. Many of them rely on traditional forms of energy such as oil for their heating needs, so they have been particularly exposed to the impact of rising global energy costs. Of course, compared with other buildings, properties off the gas grid are some of the biggest emitters, so transitioning those properties to low-carbon heat is a key Government priority. That will not only put us on track for our different obligations, but it will help to move us off imported oil, build our energy independence and help to protect consumers from high and volatile energy prices.

As Members from all four nations of the United Kingdom have recognised during the debate—showing that we are better together when it comes to approaching these matters—the problem is not necessarily confined to the remoter parts of England, Scotland, Wales and Northern Ireland. We heard from my hon. Friend the Member for Buckingham (Greg Smith), and I know that parts of Kent and other counties that might be regarded more traditionally as the home counties also have large numbers of off-gas-grid properties.

As my right hon. Friend very ably said, most off-grid properties will ultimately transition to heat pumps, which are a proven and highly efficient technology. In electricity, they benefit from a secure energy source that is not subject to the same price spikes as oil, and critically, they are consistent with net zero as the electricity grid decarbonises. Heat pumps have been successfully deployed in high numbers across the world, including in countries that are colder than the United Kingdom, such as Sweden and Norway.

The up-front cost of installing low-carbon heating may be prohibitive for some, however, and I think that is the core of the question before us. That is why we are investing £450 million through the boiler upgrade scheme to provide £5,000 grants towards the cost of installing a heat pump, and £1.1 billion through the home upgrade grant to help lower-income households off the gas grid to upgrade their energy efficiency, save on bills and transition to low-carbon heating. That funding will help to kick off our wider plans to grow the heat-pump market to 600,000 installations by 2028 and to deliver on our ambition to reduce the cost of a heat pump by between 25% and 50% by the middle of the decade.

Alongside our action to remove distortions in energy prices—starting with the launch of our proposals to rebalance energy costs later in 2022—we anticipate that heat pumps will be no more expensive to install and run overall than gas boilers by the second half of the decade. That is why we consulted last year on regulations that would end the installation of high-carbon fossil fuel heating systems off the gas grid later this decade. I reassure my right hon. Friend that we will take every step to ensure that the transition to clean heat will be fair and affordable for off-gas grid households and businesses.

I also reiterate that our continued support for decarbonisation policies relying on heat pumps is contingent on the industry taking action to drive down the costs. By signalling now our intention to take the action later, once the cost of heat pumps is much lower than today, we aim to give industry the long-term confidence to invest and drive the costs down. We will also keep the cost of heat pumps under constant review. Making sure they become more affordable is a key part of Government policy and, well ahead of implementing any regulation, we will set out what additional actions may be needed to support the phasing out of high-carbon heating systems.

I also take the chance to reassure my right hon. Friend the Member for Clwyd West that no one will be required to install an unsuitable technology in their home or business. We know well that heat pumps will not work everywhere, at least not with the current technology. Some off-grid properties are simply too poorly insulated or have certain characteristics that would make installing the technology impossible. We will take care to ensure that that group of hard-to-treat properties will have access to suitable alternatives, such as high-temperature heat pumps, solid biomass and so on, which I will explain in a little more detail.

My right hon. Friend the Member for Clwyd West raised various points. I believe his central question was: why off grid first? Off the gas grid, there is currently no strategic option to decarbonise heat with hydrogen or other technologies. That is why we are taking a range of actions to bring forward the decarbonisation of this critical group of buildings. If we can make heat pumps affordable, there are considerable advantages in moving forward, including for off-grid households and businesses, even if that means that they will be required to switch from fossil fuel heat earlier than their on-grid counterparts. My right hon. Friend asked me to reconsider the 2026 deadline. Equally, the pace at which we can make heat pumps become affordable will guide our decisions on the right time to introduce regulation and the other actions needed to make a fair transition.

My right hon. Friend asked how many off-grid homes are hard to treat. Our analysis shows that 80% of off-grid homes already have sufficient insulation for a heat pump to work effectively. They have already been deployed successfully in high numbers across the world; I mentioned Sweden, Norway and other countries. On his questions about hybrids and biofuels, along with those from my hon. Friend the Member for Buckingham, we would like to see those fuels become another solution, particularly for off-grid properties that cannot use a heat pump. We are working closely with industry to build the evidence that will inform the biomass strategy mentioned by my hon. Friend, due to launch later in 2022. The strategy will review the amount of sustainable biomass likely to be available to the UK and set out how this can be best used across the economy to achieve our net zero targets.

My hon. Friend the Member for Buckingham asked for some good news. I think I have been bringing quite a lot of good news so far. However, we are also investigating whether hybrid systems could give hard-to-treat properties additional choices and that is an area of active investigation, as we also ask whether they have potential to help us stretch limited bioresources further. I urge my hon. Friend to wait for the biomass strategy later this year. There are key considerations there in biomass production, alternative uses and trying to get a sense of where that overall market will be heading. In time, renewable liquid fuels such as HVO and bioLPG may also play a role, although they are currently in short supply and more expensive for households to use. We need to better understand the scope to expand production of those fuels for use in heat, consistent with very low emissions while remaining affordable for consumers.

The hon. Member for Ceredigion (Ben Lake) mentioned those not subject to the energy price cap. It is worth remembering that the energy price cap, which predates me in this job, was not introduced to provide a blanket level of protection for all consumers, but was instead a specific protection brought in to remove the penalty for people who did not switch between their grid gas or electricity provider. That was the purpose of the price cap. I do not think it would be fair to say that the heating oil market or the market for off-grid properties is any less competitive. There is a highly competitive market in heating oil companies, and there is the ability for the Competition and Markets Authority to look at the issue. If the hon. Member for Ceredigion has evidence of anti-competitive practices, I urge him to bring it forward, send it on to me or speak to the CMA. That is exactly what the CMA is there for.

[Drew Hendry]

The Minister is saying that if there is an issue with off-gas grid households, it should be brought to the CMA. Does he support the basic ask to get Ofgem involved in regulating off-gas grid areas? A very simple solution would be for Ofgem to take action directly.

[Greg Hands]

We have to think about the nature of that market, which I am satisfied the CMA has the ability to regulate. Although it involves an energy product, that does not mean that Ofgem, rather than the CMA, is best positioned to provide the oversight to prevent anti-competitive practices. There is a lot of Government support for off-grid properties, as there is for on-grid ones, including the £400 payment and the £150 council tax discount in England, with Barnett consequentials for Wales, Scotland and Northern Ireland.

[Greg Hands]

Of course, energy prices for businesses attract a lot of very keen Government attention. The hon. Gentleman is right to suggest that there was a consultation on the workings of the scheme, which has closed; the Government will respond shortly. Energy costs for businesses is an area of active Government interest. We provide a lot of support for energy-intensive industries, and want to ensure that overall we have a sustainable position, whereby businesses are able to afford energy bills in order to continue the vital work that they do for us across the rest of the economy.

Many of the additional Government support measures, including the warm home discount, the winter fuel payment and the cold weather payment, are also available for those off the gas grid. Energy efficiency measures are a major area of Government investment, with £6.6 billion to be provided over the course of this Parliament. I have already mentioned the boiler upgrade scheme, which costs £450 million, and the home upgrade grant, which amounts to £1.1 billion.

As somebody who used to work in a swimming pool, I was intrigued by what the hon. Member for Ceredigion described as the difficulties facing the swimming pool in his constituency. The great news is that one of the Chancellor’s key announcements this year was the reduction of VAT on solar panels. I am sure Plaid Cymru was very supportive of the Chancellor’s overall package of measures, which will bring particular benefit to the swimming pool in the hon. Member’s constituency.

The use of hydrogen is an interesting question. Decisions will be made in the coming years on where we think hydrogen can be used as a source of heat. We will have to think about our hydrogen production capacity, and the alternative pressing needs for hydrogen, such as decarbonising industry and major forms of transportation, including maritime, heavy goods vehicles and aviation. There are a lot of potential uses of hydrogen, we will need to look at the option of using it to heat buildings before taking a decision, particularly given the other alternative uses of hydrogen.

The hon. Member for Ceredigion mentioned the rules around heating oil providers not providing less than 500 litres. I urge him to speak to the UK and Ireland Fuel Distributors Association, which is a helpful trade body. I think the basic problem is that providing small volumes of heating oil is likely to raise fixed costs, and therefore to make an inefficient market with ultimately more expensive provision. His motive is a good one—to try to make heating more affordable, in smaller pieces, for constituents who are facing trouble with their bills—but the perverse impact might be to raise the fixed costs of such deliveries, but I urge him to speak to UKIFDA, which is the real expert.

I congratulate the hon. Member for Strangford (Jim Shannon) on being the chair of the healthy homes and buildings all-party parliamentary group. We are of course keen to see Northern Ireland, like all parts of the United Kingdom—I stress that it is fantastic to have all four nations represented here today—play its full role in decarbonisation, and to ensure that it is supported during times of high prices. He said that he had learned that I speak to Gordon Lyons, the Northern Ireland Minister for the Economy, frequently and perhaps even weekly. In fact, I spoke to him only yesterday about ensuring that Northern Ireland’s renewable energy opportunities are boosted. The hon. Gentleman will also know that one of the key reasons that we are taking the approach that we are on the Northern Ireland protocol is to ensure that things such as the VAT cut on solar panels can be enjoyed as much by the people of Northern Ireland as by the people of England, Wales or Scotland. Watch this space; we are always keen to help in Northern Ireland.

The SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry), called UK Government support inadequate. Well, almost regardless of what we had announced as the level of support, I could have predicted that he would say that it was inadequate. I remind him—

[Drew Hendry]

Will the Minister give way?

[Greg Hands]

Just let me explain what the support is: £37 billion for consumers so far this year and a £450 million boiler upgrade scheme. The hon. Gentleman might talk about fuel poverty, which is a very serious issue, but I remind him that it is of course a devolved issue in Scotland. I have reason to believe that he may know one or two people in the Scottish Government, so I urge him to direct his inquiries on fuel poverty to his party colleagues in the Scottish Government. Of course I am happy to take his intervention, if he will tell us whether he has raised the issue of fuel poverty with the Scottish Government.

[Drew Hendry]

I am delighted that the Minister has allowed me to intervene. Can I just clear up a couple of things? I raise the issue of fuel poverty in every way I possibly can with every Government, but I think he has forgotten that energy is reserved to the UK Government; he should have a wee look at his brief just to check. My question is this: does he think that £8 per head spent on insulation in England is good compared with the £27 per head spent on insulation in Scotland?

[Greg Hands]

Insulation is only one part of the picture when it comes to energy efficiency. I am delighted that the hon. Gentleman has recognised, and reminded us all, that energy is reserved to the UK Government. That is always refreshing to hear. I keep telling people in Scotland, “Thank God it is reserved, so that we don’t have to embark on the anti-nuclear policies of the SNP, or the anti-oil and gas sector policies,” even though the main emphasis of the oil and gas sector is indeed in Scotland.

On the regulator of the gas grid, as I have said, the CMA can intervene. Gas and electricity markets are considered natural monopolies when it comes to the grid. They are characterised by high fixed costs and start-up costs. For those reasons, these markets fall under the remit of Ofgem regulation. The heating oil market—