Energy Price Cap: Residential Buildings with Communal Heating Systems

Matthew Pennycook Excerpts

Wednesday 20th April 2022 Westminster Hall

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

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.]

[Mark Pritchard (in the Chair)]

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.

--- Later in debate ---

[Mr Philip Hollobone (in the Chair)]

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

[Matthew Pennycook]

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.

[Mr Philip Hollobone (in the Chair)]

We now come to the Front-Bench speeches.

--- Later in debate ---

[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.

--- Later in debate ---

[Dame Meg Hillier]

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.

[Matthew Pennycook]

indicated assent.

[Dame Meg Hillier]

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 the Member for Southampton, Test (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.