The Soviet heating mistake Miliband risks bringing to Britain

The eastern Ukrainian city of Alchevsk was in the throes of a cold snap when the heating to thousands of homes was suddenly cut off.

Pipes used to pump hot water from a central power plant to residential apartment blocks had fractured and broken down in the icy conditions, leaving some 60,000 people facing near-freezing temperatures for weeks.

Although it was 2006, the ageing communal power systems installed during the Soviet era in Ukraine were still in use.

Disputes over responsibility for the pipes’ upkeep had caused them to fall into disrepair and made them susceptible to failing. When they did, the consequences were a danger to life.

Alchevsk’s experience should serve as a stark warning for Ed Miliband, the Energy Secretary, as he eyes the roll-out of similar district heating systems for as many as five million households in Britain by 2050.

Miliband’s Department for Energy Security and Net Zero has said the networks “will play a crucial role” in bringing efficient, low-cost heating systems to households.

But if Eastern Europe’s experience is anything to go by, the plans risk coming back to haunt the Energy Secretary.

The communist example

In the wake of the Second World War, the Soviet Union experienced rapid population growth.

To quickly house and heat the rising number of citizens, prefab apartment blocks sprang up alongside large-scale district heating systems.

These systems channelled pressurised water, heated using waste energy from heavy industry, into workers’ homes through an extensive network of pipes.

The idea was to move the responsibility to buy and maintain boilers from the Soviet Union’s growing workforce to the state, and to serve the socialist ideal of communal welfare through cheap heating for all.

As a result, the vast majority of heating provided to housing in many Eastern European countries today is still from a central heating source – some nations heat as many as 70pc of all households this way.

However, the system is fraught with problems and leaves many households “trapped” in unaffordable arrangements without the option of switching energy providers or lowering their bills by reducing consumption.

Researchers at the Central European University in Budapest found that communist-era heating networks had contributed to high levels of energy poverty across the former Soviet bloc.

For example, following the outbreak of the Ukraine war, energy poverty in Bulgaria – where district heating serves more than one in four households – jumped to 20pc, compared to an EU average of 10.6pc.

This is because households are typically charged by apartment size or on a fixed annual fee rather than by how much power they use. Without the option to “shop around”, households have no choice but to absorb higher fees when operating costs rise at the centralised power plant.

Mike Foster, of the Energy and Utilities Alliance, says this gives rise to “crazy” examples of people opening windows as a way of cooling their properties.

“There’s no incentive to save money because you’ve already paid for the heating,” he says.

Across the former Soviet bloc, ageing infrastructure and a lack of investment have also resulted in falling heat efficiency over time, meaning more power – and therefore higher costs – is required to maintain sufficient heating provision.

The result is that households face “payment arrears, indebtedness, risk of disconnection or reduced consumption of other basic goods and services” to offset growing costs, the study’s researchers said.

“It’s a utopian vision but it’s full of perils,” says Ian Priestley, who worked for British Gas between the 1960s and 1990s – the time Soviet heat networks were being rolled out.

“If you buy a property with this, you are stuck – and once you’ve decided on the heat source, you are stuck if anything changes in the marketplace.”

Could it work in Britain?

In the UK around half a million homes are already connected to district heating systems.

Similar to countries in the former Soviet bloc, some schemes adopted a flat-fee pricing model whereby the rent, heating and often a maintenance fee were rolled into one bill. While others use a metered system, heat networks are by their nature monopolistic, which carries the perpetual risk of disproportionately high costs for consumers.

Also, because energy used by centralised plants is bought at commercial rates, it is not covered by the Ofgem price cap.

For example, households connected to Nottingham’s heat network – the largest in the country – were recently hit with bill increases of £50 a year, compared to an average of £8.32 for households on traditional gas and electric connections.

The reasons given were “the volatility of global wholesale energy prices and the RPI inflationary figure applied to steam delivered from the Eastcroft incinerator”, which generates the heat to serve some 5,000 homes and 100 municipal buildings in the city.

“Historically, [heat network] consumers have had less protection than if they were connected to the electricity or gas network,” says Kate Hill, of energy analyst Cornwall Insight.

Poor heat efficiency is also a problem, particularly for older systems, she adds, with some operating at an efficiency of just 35pc.

To avoid an Alchevsk scenario and improve heating efficiency, pipes require constant maintenance and repair. However, in cases where upkeep fees are not rolled into bills, it can end up falling to the taxpayer to fund the shortfall.

In 2021, it was reported that Nottingham council would have to spend £17.5m on bringing the system back up to scratch. This included upgrading decades-old meters, which threatened supply cuts and incorrect billing.

“It’s a real millstone around the neck of the council,” Priestley says. Nottingham city council was contacted for comment.

The Climate Change Committee, the Government’s climate advisory body, has recommended that at least 18pc of the UK’s domestic heat demand is met with heat networks by 2050 – up from 2pc in 2020.

Under plans being considered by Miliband, billions of pounds in funding would be funnelled to local authorities to help establish “heat network zones” across several areas of the country.

In these zones, councils would require all new buildings in the area to connect to centralised heating sources. Ofgem would be in charge of “regulating prices in the sector and investigating disproportionate pricing”, according to the Department for Energy Security and Net Zero.

However, to Priestley, the idea that such a system will be rolled out to millions of homes over the next few decades is “pie in the sky”. He says: “History proves it is a bit of a blind alley, using technology that is relatively untested on that scale.

“It has the smell of state-led, one-size-fits-all solutions that aren’t necessarily well thought-out.”

While Foster acknowledges that a rapid shift from oil to heating networks in the wake of the 1970s energy crisis worked relatively well for Scandinavian countries, he says Britain’s historical reliance on cleaner natural gas makes it a false equivalence.

“A lot of people say ‘look at the Scandinavian countries’ – but we’ve developed a different type of system to countries like Denmark,” he says.

“We have gas pipes in central London – digging up Oxford Street doesn’t strike me as particularly cost effective.”

Foster proposes that one potential alternative may be to investigate lower-carbon gas to heat properties, given the pipework already exists.

He believes that – while heat networks will inevitably play an important role in the shift to net zero – the Government should move away from setting targets that bind them to projects at risk of becoming financial burdens further down the line.

The highly publicised goal of installing 600,000 heat pumps per year is another example of where state-led mandates can get in the way of practical solutions, he says.

“A target that says ‘we want all properties to be 20pc heat networks’ misses the point. The targets should be reducing carbon.”

He adds: “Governments don’t have a great track record of picking winners and losers”.

A Department for Energy Security and Net Zero spokesman said: “Our mission is for clean power by 2030 because this is the best way to achieve energy independence and protect billpayers.

“Heat networks will play a crucial role in this with communities benefiting from low-cost and efficient heat systems, and we are introducing new regulations to ensure heat network operators provide a safe, reliable and cost-effective service.”

[Source: Daily Telegraph]