Energy Bill [HL]

Committee (5th Day)

My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.

Clause 165: Relevant heat network

Amendment 161AA

161AA: Clause 165, page 139, line 32, at end insert “(and includes any appliance the main purpose of which is to heat or cool the liquid or gas)” Member's explanatory statement This amendment amends the definition of “heat network” to include any appliance connected to a heat network where the main purpose of that appliance is to provide heating or cooling for the network.

My Lords, the Committee will note the large number of amendments tabled in my name on heat networks. These amendments are needed to ensure that Ofgem can operate effectively as the heat networks regulator. A large proportion of them ensure that Ofgem’s enforcement powers will replicate those that it has as gas and electricity regulator. These amendments also ensure that the Bill reflects the approach to regulation which the Government committed to in their response to the heat networks market framework public consultation. The majority of these amendments are minor and technical in nature. Some are a little more substantial, and I will address those first.

Amendments 162C and 162YYI will ensure that any price cap introduced through regulations in future can apply to non-domestic as well as domestic heat network consumers. They also widen the scope of the regulator’s power to conduct pricing investigations into instances where non-domestic heat network consumers are receiving disproportionately high prices.

The Government are committed to introducing consumer protection rules that ensure that heat network consumers receive a fair price for their heating. Regulations under the Bill will provide Ofgem with powers to investigate and intervene where consumer prices appear disproportionate, compared with heat networks with similar characteristics or compared with alternative and comparable heating systems.

Non-domestic heat network consumers, particularly micro-businesses, can be vulnerable to receiving disproportionately high prices from heat suppliers. We therefore consider it appropriate to make this amendment so that the regulator’s price investigation powers extend to non-domestic consumers, in addition to domestic consumers. The Bill also provides the Secretary of State with powers to introduce various forms of price regulation, including a price cap, should it be necessary to protect consumers while growing and decarbonising the market.

My Lords, first, I declare my interests as a project director working in the energy industry for Atkins and as a director of Peers for the Planet. I will speak to Amendment 162 in the name of the noble Baroness, Lady Worthington, who cannot be here today.

To give some context to this amendment, I welcome paragraph 14(3) of Schedule 15, in that it provides for all the conditions which may be attached to a heat network authorisation. All of this is welcome—in particular, paragraph 14(3)(f) refers to

“conditions about limiting emissions of targeted greenhouse gases in relation to relevant heat networks”.

However, it is noteworthy that the schedule does not include any conditions about the actual heat source for the emissions, and that is what Amendment 162 focuses on. It is a probing amendment, seeking to determine whether the Secretary of State or Ofgem already have the power to control the heat source using the heat networks and whether they are minded to use them.

There are some fuels which it may be in the public interest to restrict using in a heat network. For example, the UK Government are currently establishing carefully controlled trials for hydrogen for heating. Presumably, the Government would not want to be powerless to prevent a heat network provider using green hydrogen for heating if they had concerns about, for example, safety or the cost effectiveness of hydrogen as a power source. If the hydrogen trials are not taken forward, the Government may not want someone to use hydrogen in a heat network without effective oversight from Ofgem.

In another example, it may be appropriate to restrict the use of biomass, which is ostensibly low or zero-carbon. However, the Minister will have heard concerns from the noble Baroness, Lady Boycott, and other Peers last week, and there are concerns about whether the Government would have the powers to restrict biomass for local heat networks to the sustainable practices the Minister outlined in his response to that question. Can the Minister confirm in his summing up whether the Government have powers to restrict the source of heat input as applied to heat networks? If so, where? If not, would he consider taking these powers?

My Lords, I shall speak chiefly to Amendment 162. tabled by the noble Baroness, Lady Worthington, although I take the opportunity to welcome the government amendment on help for micro-businesses and say that it is great to see that happening. The noble Lord, Lord Ravensdale, has already introduced this very clearly; I shall make just one additional point and apologise to the Committee for my absence last week when a number of amendments that I had either tabled or supported were debated. I was in the Chamber with the genetic technology so-called precision breeding Bill. If we have two environment Bills running in exact parallel, it creates some difficulties. I particularly want to thank the noble Baroness, Lady Worthington, for some excellent support for some of my amendments last week.

On Amendment 162, I want to make the point that it is crucial here that we are talking about local networks; what may be appropriate in one place may be inappropriate in another. I am thinking, for example, of areas where air pollution is an issue and the kind of fuel used will be a particular issue in that area. It may, indeed, be appropriate for the regulator to take action on the basis of local conditions as well as of national polities, in terms of either the nature crisis or the climate emergency.

My Lords, noble Lords may have noticed that I extracted my amendments to the second group, when they were originally suggested to be tabled in this group. They relate to the protection of consumers.

I am grateful that the Minister emphasised protection, for both domestic and non-domestic consumers, of the commitments to district heating, decentralised energy and community energy. I am strongly in favour of that move, but I do not think the Bill, as first drafted, or as I read the amendments proposed in the Minister’s group, entirely meet the need to protect consumers of district heating et cetera to the same extent that consumers of other suppliers are protected. I was gratified by some of the Minister’s words this afternoon, but I still do not feel that this combination of what is in the Bill and the Minister’s own amendments will deliver for consumers of district heating the protections, that have been absent for so long, which are supplied via Ofgem to consumers of other forms of electricity supply. I think it will need a bit of tweaking and I shall come to that in the following group.

I do, however, want to register my appreciation for the role of decentralised energy being recognised here. We have some tidying up to do, but I welcome the Government’s commitment to extend support both for consumers in this sector and for the sector itself.

My Lords, I wonder whether rounds one to three of the green heat network fund are throwing some light on the potential for expansion in this sector. Are the Government viewing heat networks as something that we will see a lot of, or just little bits and pieces? Coming back to the amendment spoken to by the noble Lord, Lord Ravensdale, if we are going to see a lot, are we seeing green heat sources coming into play in this area? If we are to see a lot of networks, and since the ones I am familiar with, at least, require serious street works, is there a possibility of combining those street works with separating sewage from storm water?

My Lords, I want to reflect the comments of the noble Lord, Lord Whitty, in welcoming the fact that the Government really are concentrating on this area and giving it the attention that they have. We are one of the lackeys on heat networks, certainly in comparison with the rest of Europe.

One thing that struck me, though, was that on the occasions when I meet the Minister before a Bill goes through, he normally asks me to keep the number of Liberal Democrat amendments to a minimum. I think he has broken the record on this occasion, but I will keep my side of the bargain.

My Lords, I thank the Minister and others who have spoken in this brief debate for bringing forward these amendments, as they represent necessary but foreseeable conditions for what is already a doorstep of a Bill. As the Minister said in his introductory statement, these amendments collectively show why and how heat networks and heat zones will be regulated and established.

In response to the noble Lord’s query, my understanding is that there are currently 14,000 heat networks, which represent 480,000 customers—about 2% of the total energy network. However, that percentage is predicted to rise to just under 20% by 2050. They will be a huge and significant part of the future energy market, and thus crucial in meeting net zero as they can unlock otherwise unobtainable and inaccessible large-scale renewable and recovered heat sources, such as waste heat. They are especially important for built-up areas, as they are the most effective way of accessing waste heat from industry and heat from rivers and mines.

There are currently no specific protections for customers of heat networks. A recent Competition and Markets Authority report said that while the majority of heat networks customers received a service comparable to that for other traditional customers, a significant minority did not. Higher prices and more frequent outages were just a couple of the highlighted issues. The CMA recommended regulating the sector, with Ofgem announced as the regulator and Citizens Advice and the energy ombudsman named as alternative dispute resolution bodies.

I have some questions for the Minister. First, on non-domestic customers, what steps do the Government envisage will be taken to draw the line between which of them will receive these protections and which will not? Secondly, while protecting these provisions, why have they come to us so late and to what extent were Scottish heat network customers not receiving equivalent protections under the initial drafting of the Bill? Finally, does this come into play only in a case where the powers in Clause 171 to designate GEMA as the licensing authority in Scotland are used?

I thank all noble Lords for their contributions to this brief debate. I acknowledge the point made by the noble Lord, Lord Teverson: it will be difficult for me to ask him in future to limit the number of Liberal Democrat amendments after tabling all these. I quite take his point there; all I will say is that I flagged up to noble Lords at Second Reading that these amendments would be coming forward. There will be more on other subjects, as I also flagged up at Second Reading, which are still being drafted and will be tabled as soon as possible.

I first remind noble Lords, in acknowledging the point made by my noble friend Lord Lucas, that heat networks will play a crucial role in the UK reaching its net-zero targets, as they are one of the most cost-effective ways of decarbonising heating, particularly in built-up areas, where it would be more difficult to have individual property solutions. Noble Lords will probably be aware that the Climate Change Committee estimated that around 18% of UK heat will potentially come from heat networks by 2050—up from around 2% currently—to support the cost-effective delivery of our carbon targets. However, the sector is currently unregulated.

The Bill will provide regulation for that sector and give Ministers a power to introduce, among other things, consumer protection rules and carbon emission limits on heat networks. The majority of heat networks are performing perfectly well and often run by local authorities, housing associations and others, but one or two small, private networks are abusing their customers. Of course, once you are connected to it, that is effectively a monopoly. You have no choice but to take your business elsewhere, so regulation is required in the sector.

I will now talk to Amendment 162. The Bill already allows the Government to control heating sources by providing for authorisation conditions to contain emissions limits; this is contained in paragraph 14(3)(f) of Schedule 15. By gradually lowering emissions limits, authorisation conditions will drive changes in the types of fuels and technologies used to power various heat networks.

My Lords, I am delighted that my noble friend is so optimistic and shares the Climate Change Committee’s optimism about the future of heat networks. Will he therefore encourage his colleagues to support deep geothermal which, if we are to need that volume of energy, must be a serious contender as it is on the continent. However, in this country, since we have not had the exploration, there is a lot of uncertainty about whether the particular strata will behave in a way that allows heat extraction. It would be a real help to that industry if the Government were to take an interest in how to reduce that first well risk, so that we can get going in the way that the Netherlands and Germany have to take advantage of the deep heat that we all believe—or the British Geological Survey at least believes—is down there and available.

Similarly, is my noble friend content that the regulations governing tidal rivers—such as the one just outside—are such that we can use those as a source of heat for heat networks?

My noble friend makes some good points. There is tremendous potential from deep geothermal, and we are funding some exploratory projects. However, the performance is mixed: some projects have drilled and not found any rocks hot enough to power the network. What is perhaps more viable, particularly in mining areas, is the use of waste mine water for powering heat networks. There are a number of exciting schemes that I have visited, particularly in the north-east of England, where they can extract the warm water from existing mine workings, put it through heat exchangers and use it for heat networks. There are a lot of promising developments in this area.

I will get a more detailed answer for my noble friend on his question about tidal waters, but I know that there are some concerns in the industry about over-regulation from the Environment Agency in some of these areas—they have been flagged up to me. I wrote to Defra about a year ago on this subject but, to be honest, I cannot remember what reply I got—if any—at the time. I will write to him on that subject.

Amendment 161AA agreed.

Amendments 161AB and 161AC

161AB: Clause 165, page 139, line 34, leave out “district” Member's explanatory statement This amendment (together with the amendment in the name of Lord Callanan at page 139, line 35) widens the provision made by Clause 165(3) about the treatment of heat pumps so that it applies in relation to communal heat networks (as well as district heat networks).