District Heat Networks

Nusrat Ghani Excerpts

Wednesday 28th April 2021 Westminster Hall

[Ms Nusrat Ghani (in the Chair)]

I remind hon. Members that there have been some changes to normal practice in order to support the hybrid arrangements. Members who are participating physically and virtually must be present at the beginning of the debate and stay for the entire debate. I remind Members who are participating virtually that they will be visible at all times, not just to each other, but to us in the Boothroyd Room. If Members have any technical problems, they should email the Westminster Hall Clerks’ email address. I ask Members who are attending physically to wear masks until they are speaking. I call Elliot Colburn to move the motion.

[Elliot Colburn (Carshalton and Wallington) (Con) [V]]

I beg to move,

That this House has considered district heat networks.

It is a pleasure to serve under your chairmanship for the first time in Westminster Hall, Ms Ghani. I am grateful to the Speaker’s Office for granting me this debate, as some of my Carshalton and Wallington residents, particularly those living in the New Mill Quarter development in Hackbridge, have been adversely affected by district heat networks. In my efforts to support them, I have encountered many issues.

For the benefit of the House, I should briefly explain what a district heat network is. They are designed to take energy from a local energy source and distribute it to consumers through a series of highly insulated pipes. A common source of the energy is incinerators or so-called energy-from-waste facilities, as their proponents like to call them. That is the model used in my constituency.

When the Lib Dems gleefully secured the incinerator in Beddington that they fought so hard to deliver, one of their most common arguments was that the waste heat from the incinerator would be used to heat local homes. The idea was that highly insulated pipes would be laid, water would be heated at an energy transfer station, using heat from the incinerator, and sent along the pipes to residents’ homes, providing a reliable and supposedly clean heating source at a reasonable price, all run by an arm’s length company called Sutton Decentralised Energy Network—SDEN—which is wholly owned by the council. The reality is a system that has been dogged with failure, residents being ripped off and the complete absence of any action or even empathy from the council. I will expand on that point later.

My central point is that this relatively new form of energy production is almost entirely unregulated. When residents have problems, they have very little in the way of consumer protections or rights. I hope I can persuade the Government to fix that. The Government have already launched a consultation into the networks, which I contributed to, and have made space for discussions about the networks in the design of the Green Heat Network Fund. The consultation describes the heat networks as “central heating for cities”. When someone’s central heating breaks down in a traditional home, one family is affected. When a heat network breaks down, the entire network is affected, impacting hundreds or even thousands of people. As the consultation states, a heat network

“avoids the need for individual heating solutions in every building.”

Therefore, it encounters problems that will impact every building jointly. That is why there needs to be greater consumer protection.

I want to draw focus on several key themes today. The first is reliability. There have been extended delays in the SDEN system going live, meaning residents were until last month being provided with heat by the back-up boilers, which have proven less than reliable. By my count, judging from the contact I have had with residents from New Mill Quarter, in the past year, there have been nearly 20 hot water or heating outages, including over the cold winter months, leaving people without hot water or heating and putting vulnerable people at risk. On two occasions since December, the hot water and heating blackouts have required a call-out from the London Fire Brigade due to problems in the back-up boiler room.

The situation is not confined to Hackbridge. The Department for Business, Energy and Industrial Strategy heat networks consumer survey of 2017 found that a greater proportion of heat network customers experience loss of heating compared with customers not served by these networks. A report by the Competition and Markets Authority showed reliability concerns as a consistent theme of customer complaints on heat networks, particularly citing unplanned interruptions.

I am guessing that most of us live in a home heated by a boiler. For those who do, breakdowns are a rare occurrence. For New Mill Quarter residents, they are very common. Even if those of us who live in a home heated by a boiler are dogged with problems, we can vote with our feet, and switch provider or change our system and replace the boiler. That option is not available to those living in a district heat network. Residents in Hackbridge were sold a system that they were told would be 100%, 24/7 reliable. There are marketing documents to prove that. [Interruption.]

[Ms Nusrat Ghani (in the Chair)]

Order. I believe all hon. Members present have a proxy vote, so there is no need for us to suspend for a Division in the House. Please continue.

[Elliot Colburn]

Thank you, Ms Ghani.

In a public meeting that the council tried—and failed—to keep me out of, despite my calling for it in the first place, residents were told that they should have somehow known that 100% did not mean 100% and that, inevitably, there would be problems. During that same meeting, residents expressed how they could never get through to someone when an outage occurred, were never updated and had no recourse to compensation because there were no obligations on SDEN to do anything, due to lack of regulation. The meeting ended with residents very unhappy, having received no answers and a pitiful compensation offer that did not make up for the stress and concern caused by the constant outages. Nor was there any hope that things would get better; indeed, outages continued well after the meeting took place.

The second issue I want to address is customer satisfaction. Residents in New Mill Quarter experience higher than average heating bills. I conducted a survey of those residents to acquire evidence of their experience. Some 71% of residents told me that their bills were a lot higher than before they moved into New Mill Quarter; that figure rose to nearly 100% when including those who said their bills were somewhat higher.

The pricing structure of SDEN is split into two categories: a variable rate, which is the usual cost of daily rate and usage; and a standing charge, which covers maintenance and repairs. However, the New Mill Quarter Residents Association calculated that the pricing model that SDEN uses as a basis for its costs is nearly £3 million higher for the estate than the next available alternative over the contract term. I can hear the Liberal Democrats shrieking at me—incidentally, they were so keen to keep information about the pricing model quiet and out of the public eye that it took freedom of information requests and a ruling from the Information Commissioner to get that information out of them. They would say that the costs are high because they include things such as insurance and system maintenance, and that is something that we mere mortals who have a boiler must pay for separately. But the numbers just do not stack up. There is evidence to suggest that residents are being completely ripped off. Some residents are looking into private litigation, and I do not think it beyond the realms of possibility that the matter is investigated by a series of Government Departments. Things are that serious.

The overall customer satisfaction with district heat networks is also in question. I detailed the service issues on the estate, which I will not repeat. It is worth noting that, on average, district heat network customers have lower satisfaction rates than customers of more traditional forms of heating. Despite being used as a flagship example of a nation embracing heat networks, Sweden has the lowest heating satisfaction of all five European countries surveyed in a recent 2021 study. The country has a history of consumer distrust of district heating operators, due to fear of being taken advantage of in a natural monopoly.

Potentially one the harshest elements of the district heat network for residents in New Mill Quarter is the totally restrictive and monopolistic nature of the project. There are no boilers in the properties, so there is no ability to switch energy providers. SDEN is the only option. The fundamental market freedoms that have helped make our country thrive are being denied there, and elsewhere in other district heating networks. There is no incentive for SDEN to help reduce the high energy bills, because there is no threat of their customers switching providers.

New Mill Quarter residents are trapped in high energy bill contracts. When I asked residents as part of my survey if they would like to change providers, 91% said yes and the remaining 9% were unsure. Not a single person wanted to stick. When asked if they were aware of SDEN and the obligation to use it when they moved in to their new property, 35% of residents said that they were not, and 13% were unsure. It is clear that many residents were not aware that they would be trapped in the scheme before they moved in, and an overwhelming majority would support freedom in the market to choose.

I am a Conservative because I believe in the principles of the free market. Competition and choice have been shown consistently to drive down prices while driving up reliability. Monopolies have no incentive to do either, because there is no chance of their losing their customer base. Of course there are other natural monopolies in the UK, such as water, for example; but those negative impacts are mitigated through tough regulation including an industry regulator, and consumer protections.

The final point that I want to make about the networks, at least in Hackbridge, is that the project was doomed from the start, owing partly to a faulty business model. The freedom of information requests and Information Commissioner’s Office complaints have revealed that SDEN was built on the back of a complete fantasy in terms of its financial and business modelling. That is probably why the council worked so hard to keep it secret. SDEN is not making any money. In fact, it is in a dire financial situation, and residents are the ones being asked to pay the price. It is really an issue of the customer base.

SDEN is still, even now after all the problems, being touted as a massive success of the delusional, out-of-touch and uncaring Lib Dem-run council. We were told that the incinerator would mean a district heat network that would power potentially thousands of homes, even with the potential to retrofit existing properties to connect to it, giving residents a so-called greener energy alternative. In truth, that was never going to happen. The logistical nightmare of getting the pipes laid and the infrastructure in place even to heat the New Mill Quarter new build development, which is an estate of just over 800 homes, was cripplingly expensive. So it was only ever really going to be an option for new builds, and it only really happened in New Mill Quarter because as the crow flies from the estate to the incinerator there are no obstructions in the way, so laying the pipes was relatively easy.

However, it is not as if developers want to be connected in the first place. The council essentially had to strong-arm Barratt Homes into accepting SDEN and is now trying to force other developers in the borough to accept it too. On more than one occasion it has been caught with egg on its face because it failed to persuade others, including the local hospital, to become customers. That has caused real financial difficulty. Owing to the delays in getting connected and failure of the back-up boilers, in addition to failing to find new customers, the council has to foot the bill for the high gas consumption costs. That, in my opinion, offers a much better explanation for why residents’ bills are so high. It is not that hard to follow the money. The council has to pay a high cost for the gas and residents have high energy bills: put two and two together. Even now that the landfill gas engines at the incinerator site have been switched on, I have it on good authority that they are not enough to heat the homes in New Mill Quarter, so a lot of the work is still being done by back-up boilers. It is going to take yet another two years before the incinerator turbines come on line.

Looking to the future, even if the system was reliable, the incinerator was connected and working well, and prices were reasonable, it would not change the fact that the business model is still fatally flawed. There is something glaringly obvious coming down the line that I fear has been overlooked. That is the fact that the Government’s own resources and waste strategy calls for the phasing out of incinerators—or so-called energy from waste facilities—as a form of waste management, as we look further up the waste hierarchy. The less waste we produce and the more existing waste can be recycled or reused, the less necessary disposal through incineration becomes.

What happens then? The day will come when not enough waste will be produced to burn, and consequently power the heat networks. What, then, happens to the residents who get heat from them? The back-up boilers are not the answer, as has been demonstrated, because they cannot cope with the stress of maintaining an entire heat network. There can only possibly be two options. One is to import waste to keep the incinerator and the supply going, which means more vehicle movements and more pollution, and scrapping the fantasy that it is some kind of green alternative. The other is an expensive, time-consuming and in many cases potentially impossible retrofit of an alternative energy supply. The networks are not future-proofed at all and it may be 20 or 30 years away but the day will come when the failure to future-proof could lead to an even greater problem for residents down the line.

I have covered a lot of ground today, but I hope that I have demonstrated the seriousness of the problems facing New Mill Quarter residents, who feel ignored and abandoned by their ward councillors, the council at large and SDEN. SDEN’s problems are not unique, although I imagine some of the dodgy dealings might be. However, tougher regulation is clearly needed, as examples of what I have described can be found across the country. At the very least, consumers need to be given greater protections and there should be a regulator on a statutory footing, which must compel the pricing model to be on par with the market average. There should be a 24/7 helpline to report faults, a compensation package for every outage, the ability to escalate complaints to a higher organisation, and so on.

I also urge the Government to look at whether these monopolies are a good idea at all. The inability to choose a provider is not just unfair; we are also heading to a point where the source of energy might not even be available in a couple of decades. It is not fair of our generation to burden a future generation with tackling that problem. I urge the Government to let SDEN be a lesson in what not to do. Let us not resign residents in Hackbridge or anywhere else to this poor state of affairs.

--- Later in debate ---

[Janet Daby (Lewisham East) (Lab) [V]]

It is a pleasure to speak in this debate with you as Chair, Ms Ghani.

This is not the first time that I have spoken in a Westminster Hall debate on district heat networks. Such technologies are important for bringing green energy into ordinary people’s homes and making Britain carbon-neutral as soon as possible. However, as we have heard, work needs to be done to ensure that district heat networks provide not only energy efficiency, but cost efficiency. District heating providers must be brought under the control not just of formal regulators, but of consumers.

The Catford Green area of my constituency is home to leaseholders, private renters and social tenants. All those residents are locked into a heating scheme that is more expensive and less functional than the standard heating system—they are paying more money for less energy. I am sure that all colleagues agree that that does not make sense, but they have no choice.

One constituent told me that he found out about the contract with E.ON only on the day he moved into the flat that he had just bought. Unable to shop around, he feels trapped in a contract that suits his building’s owners’ finances, rather than his own. Another constituent in the same estate told me that the nature of the contract meant that she could not opt out of bills when her flat was empty. She went travelling for a few months but still had to pay a minimum of £30 to £40 a month for energy that she did not consume. Catford Green residents have also reported frequent power outages with a lack of acknowledgment or compensation from E.ON. Again, that is not fair and not right.

District heat networks clearly need regulation. With an uncompetitive market, consumers are being overcharged for a low-quality service. The current Government position of relying on voluntary membership of the Heat Trust network cannot continue. Regulation must be enforced by the Government with exactly the same expectations that are placed on other parts of the energy industry, and the same consequences for breaching standards. There must be a cap on the standing charges that companies rack up, and greater transparency in pricing tariffs. Customer service must improve and customers such as my constituents in Catford Green must be listened to and respected.

Like me, the residents I spoke to are committed to reducing their environmental impact. They support the objectives of district heating, but their valid points about high costs and low standards must be addressed to ensure the effective progress of this innovative technology. It is not good enough for the Government to say that they will look at this; they must regulate the service. My residents deserve it, and so do the public.

[Ms Nusrat Ghani (in the Chair)]

I call the SNP spokesperson, Mr Alan Brown.