The CHP of things to come?
April 1st 2008

Is CHP being implemented effectively in line with Government rhetoric. It is always cited as a good technology to emply but what is the state of CHP take-up in the UK and what are the incentives for doing so? Gerrardine Coyne reports

The Government target for installed CHP capacity by the end of 2010 is 10,000MWe.However its 5000MWe EU Emissions Trading Scheme (ETS) Phase I first target for 2000, was only achieved in 2004, with the ConocoPhillips CHP scheme tipping capacity over the 5000MWe mark.At present the Government is significantly off target in achieving the Phase II 2010 CHP target, with current Government projections anticipating that only 8100MWe will be achieved on current trends.

Government measures to help support CHP include:

• Exemption from the Climate Change Levy (CCL) of all fuel inputs to and electricity outputs from Good Quality CHP

• Eligibility for Enhanced Capital Allowances of Good QualityCHP

• Grants for public sector lead district heating schemes using CHP

• Business Rates exemption for CHP power generation plant and machinery

However, In recent years the CHP industry has faced serious economic difficulties. In 2006, 5 new schemes came into operation and 8 ceased to operate. In the current market conditions, a number of operators have chosen to mothball their CHP schemes rather than continue to operate.As these schemes are still able to operate they have been included in the capacity figures. At the end of 2006, there were 86 mothballed schemes with a Good Quality capacity of 76MWe.

Two major factors affecting the economics of CHP and the rate of installation of new GQCHP capacity in the UK are the relative cost of fuel (principally natural gas),and the value that can be realised for electricity.The expectation of a low spark spread is still cited as the major barrier to CHP development in the UK. Since both electricity and gas price movements have been upward in recent years, it is difficult to predict whether the spark spread (and so the uptake of CHP) will improve between now and the end of ETS Phase II.The value of carbon reflected in electricity prices (driven by the EU ETS) will be one factor that determines how favourable the spark spread is.

Peter Smith, research and communications manager from the Combined Heat and Power Association (CHPA), says at the level of lighter industrial processes in the UK, interaction with the ETS is not wholly positive. In Phase I CHP was "treated badly"and "people kept their old boilers". Looking at future CHP developments he says,"There is uncertainty as to Phase III. People aren't likely to make a decision until they know which way the carbon market is going and how allocations for CHP will be treated".He continues, "Until there is definite news, people are will tend to sit on their hands, is the message". Smith says for these types of processes corporate responsibility is playing a part in the push to demonstrate company products are low carbon, but there are no other real motivating factors. "There is no specific clarity as to the duration of current incentives and therefore no clear signal from the government that they value CHP at this Industrial level.The government is relying on market mechanisms rather than solid regulations. In the mind of the Government it's a case of 'efficiency will out'".

At the large end of CHP infrastructure, the rate of installation of new GQCHP is affected by the growth or decline of the industrial and service sector, which will determine the demand for heat,and so the potential for CHP.Smith continues,"There is tension with the issue of selling heat/energy to a third party, which itself has to be around for a long time, and with manufacturing in the doldrums, and a trend for some industries such as chemical companies to move abroad where there are fewer carbon regulations, most CHP developments need the push of government support".Taken together, all the Government support measures are expected to contribute around 1900MWe to achievement of the 2010 CHP target. However,Smith does not believe this is enough, especially in terms of the CCL. He explains,"Though the CHPA is working closely with Government (DEFRA and Treasury), the government is not providing the industry with clear information about how long the exemption is going to be around for, which is creating uncertainty and is not creating the right platform for investment for one of the few low carbon technologies that is deployable today".He says that the risks the CHP developer faces mean reassurance is needed about the CCL as "these assets are around for a long time and the government incentives aren't in place to make these developments happen". Smith argues that this lack of firm commitment is one reason targets are not being met. "Problems are partly down to a lack of communication.We need a clear strong statement backed by incentives.That would really see CHP take off in this country."

CHP in the UK, is already helping deliver savings of over four million tonnes of carbon annually, one of the largest single carbon reduction measures in the Government's Climate Change Programme.

However, the CHPA believes the figure is too low does as it does not take account of what the CHP (a baseload technology) is displacing at any given time. In addition, smaller CHPs, that do not claim CCL exemption, are not included in the figures because there is no central database of CHP schemes of all sizes. The CHPA says this last point is frustrating given that accurate market information is the basis of any successful market.

Smith believes more could be done to aid the growth of CHP.The technology exists and could be deployed very quickly with the right government strategies if they chose to focus on it, instead of on other ways of power generation.He ends,"CHP is a solution that is here and now"

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