Earl Russell (LD)

My Lords, I am pleased to say that we are very supportive of the heat networks regulations before us. We broadly welcome these moves, which will start to regulate the heat networks market in England, Wales and Scotland. These regulations will bring in some much-needed consumer controls and protections for the customers of heat networks. As the Minister said, heat networks are a form of deregulated energy distribution, where heating, cooling and hot water are circulated from central sources of generation to multiple endpoints of use. These can include domestic dwellings as well as public and commercial buildings. Frankly, it is shocking that heat networks have been largely unregulated to date, despite being an essential utility that is presently used by nearly 500,000 households in the UK. The only legislation that currently applies specifically to heat networks are the Heat Network (Metering and Billing) Regulations, which apply only to metering and billing. Heat network customers have significantly fewer rights and protections compared with any other energy utility customers in the UK. A report carried out by the Competition and Markets Authority in 2018 found that the existing market was, in effect, a monopoly. It raised concerns about customer protections as this market grows and moves forward. To date, this market has been allowed to operate mostly unregulated. In all other aspects, heat network customers have fewer rights and consumer protections than any other energy customers. We welcome the Government’s intention to grow this share of the energy market and we recognise that the extension of heat networks can bring benefits to customers as we make the energy transition. We welcome the use of large-scale heat pumps and novel uses of waste heat, particularly in urban areas. The recently announced Bunhill 2 Energy Centre, which will provide heat and hot water to more than 1,350 homes, a school and two leisure centres in Islington, with waste heat from the London Underground, is an example of this type of innovation. In future, waste heat from industrial processes or data centres could be used to provide new forms of domestic heat and hot water from heat that is currently used just as a by-product and released into the atmosphere. I note the Government’s stated intention to see that some 20% of the UK’s heat demand is met by heat networks by 2050. These regulations are about creating those basic consumer protections for heat network customers so that they have the same protections as everybody else. We want to make sure that this heat network market is fit for purpose so that it can grow and new customers can enter it. At the moment, the lack of consumer protection is the main barrier to growing this market, so we fully agree with the Government on these points. The lack of a properly regulated market needs to be resolved, and we support the Government doing so. This instrument uses the powers in Chapter 1 of Part 8 of the Energy Act 2023. It defines “regulated activities” in relation to heat networks and provides that anyone carrying out these activities needs an authorisation. Authorisations are to be granted by the Gas and Electricity Markets Authority, GEMA, and in practice by Ofgem. Ofgem will also have relevant enforcement powers and authorisations under the instrument. The regulations give it the powers to carry out this role, including investigative powers to collect information and issue different types of compliance notices, consumer redress orders and variable penalties. What support will the Government give to very small heat networks and small community heat networks, particularly those with fewer than 50 members? Obviously, with new regulations there is some level of new burden, so are the Government aware of that and doing everything they can to support them in the transition? As the Minister said, these regulations are only the first step in introducing a much fuller regulatory regime in the months and years to come. The authorisation regime run by Ofgem will come into force on 27 January 2026, but the provisions on consumer advocacy and the redress scheme to be operated by the Energy Ombudsman will come into force on 1 April 2025. How will those two systems work together? What will happen in that interregnum? Will the Minister and the Government ensure that, as they move from one regulatory regime to another, consumers will be protected through that transition? I want to ask about historical legacy issues, in particular the money the Government gave to people in heat networks. Once these regulations come into force, what will happen to any legacy issues, conflicts or problems that pre-date these regulations? Finally, in a statement in the other place it was made clear, as the Minister has said, that the Government want to grow heat networks to 20% by 2050. This has not had a lot of discussion in this place or the other place. We welcome this policy, but will the Minister take a moment to say how they plan to grow the heat network market? Beyond these regulations and making the regulatory framework work, what steps are planned to help increase the use of heat networks? What investment framework are the Government looking to use to help bring about more heat networks? What other mechanisms do they have in mind to help grow this market? How will it be reported on? What organisations will oversee the delivery of the increase in heat networks? Finally, does the Minister see a role for GB Energy in increasing the number of heat networks?