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Sutton Decentralised Energy Network

Volume 708: debated on Friday 4 February 2022

Motion made, and Question proposed, That this House do now adjourn.—(Rebecca Harris.)

Colleagues in this House will have heard me speak many times about the problems facing residents living in New Mill Quarter in Hackbridge and the issues surrounding the Sutton Decentralised Energy Network, or SDEN. Before I go on, may I particularly welcome that it is this Minister who is on the Front Bench? The Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully), will know much of what I am about to say, as my constituency neighbour and as the MP for the second half of Sutton, which we both represent.

For the benefit of the House, I would first like to go over some of the background to SDEN. It was set up in 2016 and is still wholly owned by Sutton Council. It was set up to provide heating and hot water to properties, as part of a heat network, across Sutton but also neighbouring boroughs. The energy for this project was to be generated by the Beddington energy recovery facility—in other words, an incinerator that is the largest polluter in the London Borough of Sutton. Put simply, the incinerator will burn waste, and the energy produced will provide heating and hot water to nearby properties.

The first phase of this project was to provide energy to New Mill Quarter, which is a new build estate in Hackbridge. It is still partly under construction, but when it is completed it will total approximately 800 properties. Residents started moving into New Mill Quarter in 2019, but since then they have been absolutely plagued by problems, with a number of issues surrounding technical aspects of SDEN as well as management by Sutton Council causing financial and mental distress to the residents who live there. I would like to go over some of the issues they have been facing in more detail.

The first and most important issue has been the extremely regular blackouts that have occurred. One resident tells me that, since 2019, they have had a total of 26 heating and hot water blackouts, and two incidents that required call-outs from the London Fire Brigade because of problems to do with the technical nature of SDEN. Until fairly recently, SDEN promoted its services as “100% 24/7 resilient”, but as residents living at New Mill Quarter can attest, the service is anything but resilient, as they continue waking up to freezing cold homes on a regular basis. I was particularly shocked at a meeting, which the council tried and failed to block me from attending, when it was claimed that residents should not have expected it to be 100% resilient, despite the marketing material claiming that it was, as this was clearly just a promotional piece of literature. I personally fail to see how this does not fall foul of the law, but I do not have time to go into that right now, so I will move on.

The regular blackouts have been particularly difficult during covid-19, as of course people were ordered to stay in and work from home, but many of them suffered regular outages of their heating and hot water while they did so. For most of us, hot water and heating blackouts would occur very infrequently—once in a blue moon—if the boiler is on the blink or a heat system does not work. But for residents in New Mill Quarter, it really is a daily guessing game as to whether or not they will wake up to have any heat or hot water. Many residents are having to pay extensively for additional or alternative heating devices, but in response to this, SDEN has only offered residents a pitiful compensation package of just £54.

The second issue with SDEN surrounds the pricing model. The council was again so keen to keep information about the pricing model quiet that it took freedom of information requests and a ruling from the Information Commissioner to even get hold of it. What it actually revealed is that residents in New Mill Quarter are indeed paying above average energy prices, despite claims from SDEN that they are on parity. The pricing structure of SDEN is split into two categories: a variable rate, which is the usual daily rate; and the standing charge, which covers maintenance and repairs. Based on the pricing model that has been provided by SDEN—finally—the New Mill Quarter Residents Association has calculated that the costs were likely higher than the market by £2.9 million across the entire estate over the term of the contract.

The final issue—again, potentially one of the more important parts of this—is that residents can do absolutely nothing about this. They are trapped by the infrastructure that is there, because properties in New Mill Quarter do not have individual heating sources such as boilers or heat pumps. They cannot vote with their feet and switch energy providers, so ultimately SDEN has a monopoly on energy in New Mill Quarter, and residents are tied into a 25-year contract that they cannot get out of.

Since becoming the MP for Carshalton and Wallington, I have basically had to deal with SDEN issues since day one, so I have been curious to look at whether these were exclusive to SDEN, but sadly it appears they are not. There are other case studies from across just the capital here in London. I hear that the Pembroke Park estate in Hillingdon has suffered failures, as have the Oval Quarter in Lambeth, New Festival Quarter in Tower Hamlets and multiple estates in Southwark, all of which have suffered hot water and heating outages. But nothing in my research comes even close to the absolute shambles presided over by Liberal Democrat-run Sutton Council.

Thanks to a motion in Sutton Council by the Conservative group, an independent review into the financial model of SDEN was conducted. The Chartered Institute of Public Finance and Accountancy conducted the review over the summer, and its findings were nothing short of shameful. It concluded that Sutton Council had made false assumptions in its financial modelling to gain approval for its heat network. It was essentially a fake news business document. The model falsely included 75 dwellings that do not exist and funding grants that were never obtained. The report concluded that SDEN was “not financially stable”. To improve the financial resilience of SDEN, the report suggested two things: increases in the tariffs charged to customers, who are already paying above the market rate for energy prices; and, revising the funding available from the taxpayer to pick up the pieces.

The second thing I want to look at is the fact that SDEN is dependent on the Beddington incinerator to operate, but that creates a paradox. SDEN claims to be a low-carbon energy provider, but SDEN was used as a condition to get approval to build an incinerator, which is the largest polluter in the borough. Those two statements just do not add up. The heat network relies on the burning of waste to keep it going, yet the Lib Dems are claiming that they can increase recycling rates this way. Incineration is not conducive to our net zero targets, and it is the Government’s policy to phase out incineration in their waste minimisation strategy.

As recycling levels increase, along with “reduce and reuse”, the amount of waste that the borough produces, and the amount of waste that other boroughs send to SDEN to burn, will inevitably reduce. That can mean only one of two things: either SDEN will have to import waste to the Beddington incinerator to keep it operational, or the incinerator will become obsolete, as there is no waste to burn, and therefore homes will be left with no source of heating. I do not think the latter is likely any time soon, because the operators of the Beddington incinerator, which was approved by the Lib Dem council in 2013, are now looking to expand its capacity. They are applying for an increase in the amount of waste it can burn, and much of that will be imported from outside the borough. More waste equals more vehicle movements, equals more incineration, equals more air pollution, equals more carbon emissions.

To add insult to injury, there has been a complete lack of any understanding, empathy or action from the Lib Dem-run council, including the Lib Dem councillors representing the area, which may explain why it seems most of them are jumping, like rats leaving a sinking ship, rather than daring to face their electorate for re-election in May. The Lib Dems are still touting this scheme as a huge success—as proof of their competence and a demonstration of how well they run things. If this is how they run things, it is no wonder that more and more lifelong Lib Dem voters are telling me that they simply cannot put them back into the council in May.

This is where we need the Government to try to help. This relatively new form of energy is almost entirely unregulated, so new consumer protections are needed. I welcome the work that BEIS is doing to regulate heat networks. I support the decision for Ofgem to act as the regulator, with Citizens Advice acting as advocate for customers and the energy ombudsman responsible for resolving disputes. We need regulation and consumer support as soon as possible. To reach our net zero ambitions, heat networks are set to increase by 800%—that is a lot of growth in a short period of time.

To protect and help current and future heat network customers, regulation needs to be expedited. People are trapped in homes, unable to sell due to the well-known issues with heat networks. The regulators need to have enough bite to resolve the issues that customers are experiencing, including, importantly, providing compensation for historical complaints, ensuring that these projects can be future-proofed.

Some problems are yet to be addressed. In the case of SDEN, there have been failures by the public sector local authority and the private sector developer/energy provider, which needs cross-departmental support. Sutton Council, as I have already said, established this heat network under false pretences and has failed to manage its finances, so I would be grateful to hear how BEIS and the Department for Levelling Up, Housing and Communities can work together to ensure that rogue and incompetent local authorities are not failing consumers and to prevent them from conducting these projects without legitimate financial models. Wider conversations need to be had about how we can liberate the heat network market so that they are not monopolised, to the detriment of customers trapped in long-term contracts.

SDEN has been a catastrophic failure. It was founded on fantasy, it is not working and now local residents are going to be asked to foot the bill for this vanity project. At the heart of this are residents trapped with nowhere to go. They cannot change provider because of the monopoly of heat networks such as SDEN, so we need tougher regulation. We need the energy price cap to apply to heat networks, and when things go wrong we need compensation and assurances that incompetently run councils, such as Lib Dem-controlled Sutton, are not the final arbiter.

The Lib Dems are not going to help these residents. They just do not care. I hope that the Government can step in with tougher regulations to protect SDEN customers from the disaster that they have been left with.

I congratulate my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) on securing this important debate today. I think we are at well over three figures now for the number of times he has stood in this place and raised matters to do with Carshalton and Wallington.

My hon. Friend has had to mention SDEN far too many times. Residents in New Mill Quarter have had to suffer and I have seen a lot of the comments that have been made, although not as many as he has as a dogged champion for those residents. Local Facebook groups and newsletters that I have read as a Sutton Member of Parliament call out for someone to come in and sort the situation out. In May, we will have that opportunity.

I am sorry to hear about my hon. Friend’s constituents, including those at New Mill Quarter, who have been experiencing all those issues with their heat network. I sympathise with them for the difficulties that must cause and agree with my hon. Friend about the need for protections for heat network consumers.

The experiences of constituents that we have heard highlight the importance of the Government’s commitment to regulate the heat networks market within this Parliament. Heat networks are vital to our net zero ambitions. As we have set out in the heat and buildings strategy, they are the only way that we can unlock large-scale renewable and recovered heat sources such as energy from waste, waste heat and heat from rivers and mines. When they are deployed effectively, heat networks can bring together greater heat efficiency than individual gas boilers, lower costs for consumers, unlike what we have just heard, and support for local regeneration. We recognise when we hear examples such as this that we need to regulate the market to ensure protections for heat network consumers.

In 2017, the Government commissioned a survey to quantify consumer experiences with heat networks in England and Wales. Those results showed that consumers connected to a heat network generally receive a good service and are as satisfied as non-heat network consumers. They also showed that on average a heat network consumer is likely to pay £100 less a year for heating and hot water than consumers on other utilities. We can see that heat networks per se can be a good thing, but unfortunately, as we have just heard, they are clearly failing residents in Carshalton and Wallington and in New Mill Quarter in particular.

We acknowledge the 2018 report from the Competition and Markets Authority, which, like my hon. Friend, considered a number of examples from around the country and showed that a significant minority of heat network consumers experienced high prices, frequent outages and a lack of transparency. We committed to the CMA’s recommendation of regulating the market, consulted on establishing a heat networks market framework and in December published the Government response to the consultation in which we confirmed that we would appoint Ofgem as the heat networks regulator.

The document includes summaries of responses received, and sets out our proposals on consumer protection, regulating the carbon emissions of heat networks, and technical standards. That will include introducing consumer protection rules to combat cases of detriment, such as the outages being experienced by residents of New Mill Quarter. We want heat network consumers to have comparable levels of service and protection to those using electricity and gas.

As part of the market framework, we will introduce quality of service standards requiring notification periods for planned outages and compensation for all outages. Consumers will have access to an independent redress scheme and a consumer advocacy body, which will provide a consumer helpline and priority services for consumers in vulnerable circumstances. The regulator will have powers to enforce price transparency, introduce guidance on fair pricing, set requirements on cost allocation, and conduct investigations into heat networks where prices are disproportionately high.

Finally, consumers will be provided with a minimum level of easily accessible information and guidance on heat networks at the pre-contractual stages of property transactions and during residency. There will be requirements on the provision of heat supply agreements and billing information.

We are preparing to introduce that legislation to regulate the market, but measures are already in place to improve standards for heat network consumers. Heat Trust provides an independent, market-led voluntary standards scheme. Consumers on heat networks registered with Heat Trust benefit from terms of service similar to those in the gas and electricity markets. They are also able to access the energy ombudsman if they have a complaint against their heat supplier. In 2019, the Department for Business, Energy and Industrial Strategy wrote an open letter to all heat networks encouraging them to register their schemes with Heat Trust. We continue to encourage schemes to sign up, raise standards now and prepare for regulation. We also support the Heat Networks Industry Council’s work to establish the consumer protection agreement and the heat network emergency responders group in response to the covid-19 pandemic. We encourage heat suppliers to sign up to this agreement, and we have written to signatories urging them to do more to tackle outages and improve compensation standards for outages.

Though these schemes have benefitted many consumers, we recognise that regulation is needed to drive up consumer standards across the heat networks market. I therefore reiterate our commitment to regulation, as pushed for by my hon. Friend. We have introduced several schemes to support heat network deployment. The Government’s heat networks investment project has made £320 million of capital funding available for investment in heat network projects through grants and loans in England and Wales. This will be succeeded by the green heat network fund in 2022, which will support and incentivise the use of low-carbon heat sources in heat networks. Both of these investment projects ensure adequate consumer protection measures are in place by requiring projects to demonstrate Heat Trust standards or equivalent levels. This ensures that we only support heat networks that deliver fair pricing and are that well-designed, efficient systems.

Furthermore, we have been carrying out work on improving performance across a number of existing heat networks. This provides an evidence base for the development of the heat networks efficiency scheme, which will part-fund operational performance improvements and carbon emissions reductions in existing systems. Further details will be announced later this year.

I was really interested to hear my hon. Friend’s description of what has happened in Sutton. He has raised this on a number of occasions with my hon. Friend the Secretary of State, while he was Energy Minister, and with the new Energy Minister. BEIS officials were concerned about the issues raised by customers connected to phase 1 and so asked the council how the grievances were addressed before approving phase 2 funding. Sutton Council clearly had to recognise that there were service interruptions in 2020 as a result of technical failures caused by the housing developer during the network installation phase of the New Mill Quarter development in Hackbridge. At the time, it apologised and made goodwill compensation payments to all affected customers as part of the apology. The move in the primary heat source connection from temporary to permanent at the Beddington landfill gas site was successfully completed in March 2021.

This is an interesting point: I have seen my hon. Friend’s videos on social media around New Mill Quarter talking about the outages that were happening just last month. However, the council has given us figures that say that, since the heating network was connected to the primary heat source, its reliability has significantly improved, with an availability rate of 99.8% being achieved from March to September 2021. However, the residents I have heard from, and the story that my hon. Friend tells, suggest a different story entirely.

We have to remember that councils do not exist to install heat networks or to install incinerators in one of the most polluted roads in London. They exist to provide a service for their residents who elect them in the first place. They would be nothing if it was not for the people they serve. They should be there to make sure that they keep people warm, to give them hot water and to get rid of their rubbish in an environmentally responsible way. That is their purpose. The incinerator and the heat system are mechanisms to achieve all that, but they are not a means of it themselves.

The council needs to be responsive to its electorate and to those residents. It is disappointing to hear my hon. Friend talk about the lack of empathy and sympathy being shown to them. If it is the council that is providing that service directly, rather than a third party, then it should be more responsive and it should be serving those residents. I hope that, in May, those residents will be able to reflect on that in their consideration, because councillors need to be accountable. If we are to devolve power to local authorities—I am, and always have been, a big fan of devolution—it is really important that residents are able to pull councillors up, so that they do not get arrogant and they do not get complacent. Residents should remember that they will be voting in councillors who will be there for the next four years. Four years is a long time—just think how long ago 2018 seems. Over the next four years, we want to make sure that those residents in New Mill Quarter get the hot water and the heating that they have paid for—it is a service—so they need councillors who will be far more responsive.

Let me have a final word on the incinerator. When I was the leader of the opposition on Sutton Council, I remember speaking about incinerators to one of the previous environment spokesmen on the council. When one was brought in, so much of the debate on pollution was actually about vehicle movements. It is disappointing that, despite burning 70% of the waste of the boroughs that it serves in the south-west London partnership, it does not have enough to feed it. My hon. Friend was absolutely right to talk about the circular nature of the argument in the bid, which included some dubious numbers. It is not appropriate that the talk now is of more vehicle movements in that area. We need to be really careful about that, which goes back to the responsiveness that I was talking about.

In the round, it is essential that heat network consumers are provided with clean and reliable heat at an affordable price. It can work; it does work in other parts of the country. As I have said, it is a real marker of our net zero ambitions, which is why we are developing a heat networks market framework that places consumers at its heart, delivers sustainable investment in the sector, and maximises heat networks’ potential economic and environmental benefits. We committed in the energy White Paper to legislate for this market framework by the end of this Parliament, and we are working closely with industry and consumer groups to ensure that the regulation delivers positive outcomes for consumers.

I conclude by once more congratulating my hon. Friend on being such a champion for his area, on securing this debate and on raising some really important issues for the residents of New Mill Quarter and beyond.

Question put and agreed to.

House adjourned.