Heat Networks Regulation

Janet Daby Excerpts

Wednesday 28th November 2018 Westminster Hall

[Janet Daby (Lewisham East) (Lab)]

I beg to move,

That this House has considered regulation of heat networks.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I am pleased to have secured a debate on this issue, which is of great importance to residents of Catford Green in my constituency, as well as those living at three other sites in Lewisham borough and dozens of others across London, the south-east and the south-west.

District heating networks power entire estates by sending hot water and steam via insulated pipes from a central generator, instead of a boiler being installed in each home. There are around 14,000 heat networks in the UK, serving an estimated 450,000 customers and providing around 2% of heat demand in UK buildings. Types of heat network vary widely, from local authority and other not-for-profit schemes to private networks. Their use is increasing more rapidly in London, where developments are required to be carbon neutral.

Such systems, which are often fuelled by natural gas or biomass, could provide part of the answer to a lower carbon domestic energy mix, for which we should continue to strive. However, their potential benefits are completely undermined by fundamental consumer rights issues. Unlike other domestic energy services, these systems are not regulated. As a result, residents pay over the odds for their energy, have few ways to track or control their usage and no opportunity to switch to a cheaper tariff or provider. I am here to address that problem on behalf of my constituents. Regulation for district heating systems must be brought into line with electricity and gas to provide residents with adequate protection.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

I congratulate my hon. Friend on securing this important debate. Like her, I have thousands of constituents locked into those schemes who are paying over the odds and have no means of effective redress. The Competition and Markets Authority recommended in its report in July that the Government regulate this sector by statutory regulation, as my hon. Friend suggests. Does she agree that the Government must act to legislate for that statutory regulation, rather than allow months or even years to roll on while customers are not handed a fair deal?

[Janet Daby]

I agree that the Government need to readdress this issue and make regulations—I will speak about that later.

I was elected to the House in June. One of my first pieces of casework was from a resident representing a group of public and private tenants in a relatively new block of flats that is served by a district heating network. The tenants’ main concern was the unsustainably high cost and wild unpredictability of the bills they received. I understand that those are often up to triple the average.

One constituent told me:

“My hot water bill for July 2018 was £97.07—and this is just hot water”.

He wrote that his bills

“range from £29 to £97 each month. I haven’t used the heating since the spring, as I live on my own and I use hot water sparingly.”

The amount he describes having to pay is very high, given his needs. Because of the communal nature of the supply, there is no real way for residents to monitor their usage, which means they often receive unexpectedly large bills.

People who live in buildings with district heating systems tend to be locked into long contracts with their suppliers. The term of my constituents’ contract is 25 years, following which it will be retendered. Those customers do not enjoy the same benefits as gas and electricity customers, for whom it is now easier to switch supplier to find the best deal. With no motivation for suppliers to compete, the monopoly becomes further entrenched, and it is residents who lose out.

There appears to be a lack of transparency and information about district heating systems. My constituents contend that they were not explicitly made aware until the day they moved in that their building was heated by such a system. They kindly provided me with a copy of their lease. Although numerous clauses provide legal support for the implementation of the system, at no point has there been a sufficient attempt to clarify what it actually is, how their homes are heated or the terms to which they are subject. The housing developer contends that it made efforts to tell residents as they moved in, but it seems to me that a more substantive intervention needs to be made, earlier and in good faith. At the very least, there was an omission, which needs to be corrected immediately; at most, there was a deliberate attempt to obfuscate. Of course, aligning the regulations with those for gas and electricity would resolve the problem.

Following pressure from consumer groups, the Heat Trust was set up in 2015. It remains the closest thing to a regulator the sector has. It aims to support common standards for the quality and customer service that heat suppliers provide their customers, and it gives customers access to the energy ombudsman for complaints. However, a closer look reveals a different picture. Membership of the Heat Trust is completely voluntary, meaning schemes that do not want to join are under no obligation to do so. Although the trust is managed by a not-for-profit organisation, its board is made up almost entirely of developers, suppliers and supporting services. There is no clear consumer representation. It appears that the Heat Trust is not fit for purpose. If the Government continue to rely on it, they will allow a system that systematically disadvantages residents to develop unchecked.

My constituent put it best when he described the “hidden” but very real consequences of the district heating monopoly on residents. For those lucky enough to own their home and have a good job, it is a significant financial inconvenience and may be a hindrance when they come to sell their home. However, for social housing tenants who receive universal credit, people holding down several part-time jobs or those who just run a tight household budget, it poses a much more fundamental problem, which threatens to destabilise lives. Such a monopoly, with its punitive impact on residents, represents the sort of injustice I thought we had done away with years ago.

That lack of fairness was recognised by the Competition and Markets Authority, which published a report on the industry in July. My hon. Friend the Member for Greenwich and Woolwich (Matthew Pennycook), who has eight of these systems in his constituency, had called for that, and I am grateful for his support. Among other things, the CMA recommended that the Government should introduce consumer protection for all heat network customers so they get the same protection as customers in the gas and electricity sectors; address low transparency so customers know they are on a heat network and there are clear agreements or contracts between customers and heat network operators; ensure that customers are aware what they are paying for, which is often unclear; and protect customers from poorly designed, built and operated heat networks by preventing developers from using cheaper options, which end up being paid for by the customer over the long term, to meet planning regulations.

I understand that the Minister and his Department are developing a heat networks market framework, which will form the Government’s response to the CMA review. I see no reason why the Government should continue to allow an industry that they hope will grow and support our green ambitions to develop with built-in disadvantages for consumers, and I see no reason why a double standard should continue to exist between residents using district heating systems and those who heat their homes with electricity and gas. I urge the Minister to adopt the recommendations in the CMA report, regulate these systems properly, require a culture of transparency, and give consumers the protections that have long been standard for other domestic heating fuels. Only then will we realise the full benefits that these systems can provide.