Energy Price Cap: Residential Buildings with Communal Heating Systems

Meg Hillier Excerpts

Wednesday 20th April 2022 Westminster Hall

[Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)]

I beg to move,

That this House has considered the energy price cap and residential buildings with communal heating systems.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I should declare an interest, as I live in a leasehold flat in a block with a communal heat network. I also represent a constituency with one of the highest numbers of multiple dwelling blocks in the UK, a number of which have community heat networks.

The problem is very simple. I think I should lay that out, and then I want to lay out what I am asking the Government to do and hope to get a positive response from the Minister. Quite simply, we all know about the cost of living crunch and the increased price of energy bills, and of course the Government have put in certain measures to try to mitigate that, but constituents who live in residential buildings with communal heating systems—also known as heat networks—are not protected by the energy price cap as other energy purchasers are.

[Janet Daby (Lewisham East) (Lab)]

In my constituency there are many Barratt homes that have district heat networks and I have continually raised that issue in Westminster Hall and on the Floor of the House. Does my hon. Friend agree that it is even more important that the Government introduce regulation to put protections in place for residents where they have these heating networks, given the fuel crisis experience that the country is going through and the increases in fuel costs?

[Dame Meg Hillier]

My hon. Friend is absolutely right. About half a million people, as an estimate, live in such blocks—not only new developments such as those that she has highlighted, but some older developments that would take a lot of retrofitting to get individual heating systems in place; but that is not the answer and I will come to that in a moment.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Lady for securing this debate. She is right, and such bodies as Ginger Energy have highlighted that domestic customers of communal heating networks should be included within the energy price cap’s protection. The Government were committed to introducing legislation. This affects some 14,000 heat networks in Great Britain—2,000 district heat networks and 12,000 communal heat networks. Half a million customers suffering, half a million homes unheated, half a million reasons for us to take action. Does she agree?

[Dame Meg Hillier]

The hon. Gentleman is absolutely right. When I get to my asks of the Government, I shall be very clear, as the hon. Gentleman and the hon. Lady have highlighted, that the issue has been raised in the House before—indeed, it has been raised since 2018. I will get on to the timeline, and my question to the Government is this: we know about this, so why is it taking so long to resolve it?

The key issue is quite a simple definitional issue: the energy price cap sets a price limit on domestic supplies of electricity and gas, but not on domestic supplies of heat. So developments of the type that my hon. Friend the Member for Lewisham East (Janet Daby) referred to will often have wood-chip burners or an equivalent in the basement, or some other source of supply, and they provide heat to the home, but it is purchased for the building and then sold on to an individual. Ofgem, as we know, regulates the supply of gas and electricity but not, at present, the supply of heat. That means that while the supply of gas to a heat network is regulated, the supply of heat from the heat network to homes is not, because Ofgem classifies supplying heat to a heat network as a commercial arrangement, not domestic. But let us be clear: the end user of this is someone living in a home—a flat, an apartment—who benefits from the communal heating system, often arranged for good reason, sometimes in an attempt to provide green energy, but it has actually left individual residents, whether they are homeowners or tenants, in the lurch.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I want to cite an example. There are many such cases in my constituency. A junior doctor who wrote to me said that her heating price went up by a staggering 400% and every day she has to pay an additional £7 a day. She wrote to me in the winter, in December, because of this policy, and up to half a million people are affected. This is not a difficult thing for the Government to address—to make sure that the regulator can encompass heating in this form so that they are protected—so I hope the Minister will address it and will have some good news for us today.

[Dame Meg Hillier]

My hon. Friend highlights another important point, which has been mentioned by other hon. Members—that of course the individual, the resident, gets a bill that is directly related to their property, to their energy use, so it is very personal, yet that is seen as a commercial supply and clearly it is not; it is about someone living in their home.

One of my constituents, based in the East Wick and Sweetwater development, has their heat supplied via a heating network from East London Energy. From April, this month, East London Energy is increasing its usage fee by 103%, and other Londoners on heat networks are reported to see price increases of over 700% in the worst cases.

The National Housing Federation, which has a lot of these properties in a portfolio of housing associations generally but represents housing associations at a national level, says that around 150,000 of the people affected are housing association residents. These are people on lower income, of course, but we also know that there is a strong correlation particularly between new tenants of social housing and the ability of a household to pay.

Peabody, a large landlord in my constituency—obviously it is also a housing association—has 172 operational heat networks across its whole portfolio, and it says that in general the price of energy has increased by over 300% since April 2021. Peabody has managed to mitigate up to a point by buying multi-year deals from its supplier. However, that is not universal and clearly it does not always help, because it depends at what point in the market the energy is bought. There are 32 of Peabody’s operational heat networks that cover over 100 homes each, so these are quite large scale. Someone could live in a development next door to a person in another development; one could benefit from the energy price cap while the other, by accident of housing allocation, bought a property with a communal heat network, not realising what the consequences would be. We would not have predicted that the energy prices would have increased so much. Nevertheless, that is the problem now.

What has been happening? In 2018 the Competition and Markets Authority conducted a study that concluded that the market should be regulated. Here we are in 2022, with energy bills having gone up in April and going up again in October—considerably. In December of last year the Government, as part of their response to the heat network’s market framework consultation, published proposals to regulate the heat network sector. It is a welcome move but it has taken a long while to get there. I am sure that the Minister is aware how pressingly urgent that is for people, particularly those on low incomes who are crippled by the extra costs they are having to pay.

The Government tell us that they are committed to introducing legislation in this Parliament, so it would be helpful if the Minister could indicate when that might be—he will get my wholehearted support if it is in the Queen’s Speech. He might get a quick win; he can sell it to the business managers in Government as something that he can get through quickly with little opposition, if he does it well. The Government also intend to appoint Ofgem as the heat network’s regulator, and they have already highlighted that Citizens Advice could be the consumer advocacy body. A lot of pieces of the jigsaw are beginning to come together, but we need to know when it is going to happen.

I am not alone in asking for regulation: the Heat Trust has called for it to happen; the Business, Energy and Industrial Strategy Committee, as part of a recent report on decarbonising energy, called for heat networks to be regulated; and crucially, it is in Ofgem’s forward programme for 2022-23. It could stretch out for quite a long time to come, but that is not fast enough for those residents who are sorely affected.

The Government need to make faster progress. In the meantime, there are a couple of things they might consider. I would be interested to know whether the Minister has considered these things, given that the Government have professed their desire to support households and insulate them against energy bills. The National Housing Federation has called on the Government to provide targeted financial support for housing associations—the 150,000 residents I mentioned earlier—that covers the expected rise in energy bills. We have had a rise in April, but there is an expected rise coming in October as well. It would be for those who are not protected by the energy price cap, to create a level playing field for residents of the same landlord who often have very different energy bills. It could be a dedicated hardship fund; there is precedent for that during the covid pandemic, when local authorities managed similar funds. Although the Public Accounts Committee has not looked into it in full, those funds had quite good assurance procedures to ensure that the money was targeted. I think some has even been returned to the Treasury—not for energy, but for other hardship. There are also existing schemes that could be extended.

All individuals have a bill that comes, so there is an easy way of attaching the cost to the household to the household’s name. There must be a creative way that the Government could look at as a stopgap while the more detailed work is done. That also highlights the constant need, which I want to reiterate again, for insulating and retrofitting homes, because some of those heat networks are in quite old buildings and it is a real issue.

All of those solutions we would like to see instantly, of course, but my simple ask for the Minister today is that some of the most vulnerable customers need support right now. Someone like me can manage. It is the people who really cannot, and who are going to have to choose between eating and heating—the extra £7 per day highlighted by my hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali)—that are the real concern. I hope the Minister can give us assurance not only that this is being looked at, but that we are going to get action sooner rather than later.

--- Later in debate ---

[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.

--- 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.