Department for Environment, Food and Rural Affairs
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Economic potential for combined heat and power schemes revealed

Economic potential for combined heat and power schemes revealed

DEPARTMENT FOR ENVIRONMENT, FOOD AND RURAL AFFAIRS News Release (News Release ref :373/07) issued by The Government News Network on 19 October 2007

Increasing the UK's capacity for Combined Heat and Power generation (CHP) should yield considerable environmental and economic benefits, two Government reports reveal today.

The reports, published as part of the requirements of the EC Cogeneration Directive, predict that over 10% of the UK's electricity will come from CHP generation by the end of 2010. It goes on to state that the economic potential exists to provide 17% of our total energy requirement from CHP.

The report on the UK's national potential for CHP examines how the opportunity to capitalise on this energy source can be harnessed and it outlines the taxation, market mechanisms and policy framework in place to support the growth of Good Quality CHP capacity.

Combined Heat and Power is a highly fuel-efficient process which sees the simultaneous generation of heat and power in a single process. This means it can produce greatly reduced levels of carbon dioxide emissions compared to the separate generation of heat and power e.g. via on-site boilers and fossil fuel power stations. As CHP is a process that can be applied to a variety of fuels and technologies, it will play a crucial role in the UK's low carbon future.

Notes to editors:

1 The Government is committed to sustainable development as reinforced in the Energy White Paper 2007 and the Energy Review 2006. CHP has an important role to play in achieving the White Paper aims to move the UK towards a thriving, competitive, low-carbon economy. As emphasised in the Pre-Budget Review, the Government will aim to ensure that arrangements for future phases of the EU ETS continue to recognise the carbon savings that CHP delivers.

2 A report illustrating the UK national potential for high efficiency CHP, and a report on progress to meeting that potential, have been published to meet the requirements of European legislation (the Cogeneration Directive 8/2004). They can be found on the Defra website:http://defraweb/environment/climatechange/uk/energy/chp/index.htm

3 The UK Progress Report shows that in 2005, using definitions in the European legislation, there were 1,502 CHP units with a total electrical capacity of 5,440 MWe, generating 27TWh of electricity and 51TWh of heat in the UK. The latest energy projections for the UK suggest that by the end of 2010, 36 TWh of the 350 TWh of electricity supply that will be needed will come from Combined Heat and Power. This projected contribution, of just over 10% of total electricity, is from the expected development of cogeneration. However, the report identifies that this projection is not the total economic potential available in the UK, which could be up to 61TWh of electricity or 17% of the total needed by 2010. This figure should be regarded as an upper limit that may not be realised in practice.

4 The report on the UK national Potential for CHP details how the Cogeneration Directive has been implemented and outlines existing incentive schemes. . The report analyses barriers to Combined Heat and Power, which include the relative prices of gas, and the national policy framework.

5 The UK Government has set a target of at least 10 Gigawatts (GWe) of installed Good Quality CHP capacity by the end of 2010. 'Good Quality' denotes those schemes that have met the energy efficiency criteria laid down in the UK's CHP Quality Assurance Programme (CHPQA). The energy efficiency criteria are currently under review to bring them in line with the requirements of the EU Cogeneration Directive (8/2004). Certification under CHPQA entitles schemes to various financial benefits, more details of which are available from http://www.chpqa.com. The Government offers incentives for Good Quality CHP through:

Taxation:

- Exemption from the Climate Change Levy for all Good Quality CHP fuel inputs and electricity outputs

- Eligibility for Enhanced Capital Allowances (ECAs) for Good Quality CHP plant and machinery

- Business Rates exemption for CHP power generation plant and machinery

- A reduction in VAT on domestic micro-CHP

Market mechanisms:

- Eligibility for Renewable Obligation Certificates (ROCs) for biomass-fuelled CHP and Energy-from-waste (EfW) CHP (the biomass element of fuel utilised)

- Favourable allocations that reward the carbon saved by CHP schemes under phase II of the EU Emissions Trading Scheme

Positive policy framework

- Encouraging the take-up of CHP through planning policy and Building Regulations

- Updated guidance for power station developers to ensure full consideration of CHP

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