Energy Price Cap: Residential Buildings with Communal Heating Systems

Rushanara Ali Excerpts

Wednesday 20th April 2022 Westminster Hall

[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.