Government signals move to cap soaring heat network bills

Energy ministers have hinted that the government is considering a cap on heat network customers’ bills, which Parliament was told have risen by up to 700% recently.

In a House of Commons debate on the escalating bills faced by residents of buildings with heat networks, the City of London and Westminster MP Nicky Aiken called for a cap on the energy bills of households who are exposed to wholesale prices because they are on one of the communal heating systems.

The Conservative MP said she had been told by junior energy minister Lord Callanan that the Department for Business, Energy and Industrial Skills (BEIS) is “considering looking at options to legislate for Ofgem to be given powers to intervene when prices are significantly higher for consumers.”

Ofgem classifies the supply to heat networks as commercial not domestic arrangements, meaning that their customers do not enjoy protection from the price cap.

The government confirmed in January that Ofgem would regulate the heat network market but indicated at that point it did not plan to introduce price caps or direct profit regulation. However, it said it did want to give the secretary of state powers to allow Ofgem to introduce price regulation in future if this proves necessary

Responding to Aiken on behalf of the government, energy minister Greg Hands said: “When we introduce new legislation, we will consider all options on price regulation.”

However, she said that bringing forward these measures in the Energy Bill, which is expected to be included in next month’s Queen’s Speech, means that it will be a “year or two” before a cap can be implemented.

Describing this as a “huge time lag”, she said: “I do not think residents can afford such a long lead-in time for the relevant laws to come to fruition.

“Those residents, through no fault of their own, are fully exposed to extreme market changes, with little recourse to any help. This cannot be left for any longer. Right now, Europe faces its worst energy crisis since the Arab oil embargoes of the 1970s. In turn, consumers and landlords operating heat networks are consistently reporting extreme examples of energy price rises to me.”

Dame Meg Hillier, chair of the Commons Public Accounts Committee and Labour MP for Hackney South, backed up Aiken’s call for heat network customers to be given more immediate relief from spiralling bills.

Citing reports that heat network customers in east London are facing bill increases of up to 700%, she called for a “stopgap” solution in the form of dedicated hardship fund to help the estimated 150,000 housing association residents who are on communal heat networks.

While heat networks are not all “rogue organisations”, some are run inefficiently so need to be regulated, shadow energy minister Alan Whitehead said: “An intervention is needed to protect those 500,000 people on district heating networks from the consequences of the volatile gas market for the future, and also to protect those people who are running those heat networks from the consequences of a one-sided price.”

Hands said the government is committed to introducing legislation during the current Parliament to give Ofgem powers to intervene if heat networks are charging “disproportionate” prices.

However he said it is not “fair to characterise heat networks as being exploitative practices”, adding that as commercial purchasers of gas, heat networks can “ordinarily” purchase gas at cheaper prices than individuals.

“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.”