Connecting the Future - Greenpeace UK

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Connecting the future: the UK’s renewable energy strategy Sustainable energy systems 50 4.2.1 Combined heat and power CHP burns fossil fuels or biomass to generate both heat and electricity. Even with the use of fossil fuels, CHP can produce around 30% lower emissions than conventional electricity generation technologies (Defra 2007a). The government has two long-standing targets for CHP capacity: 5GW of ‘good quality’ CHP capacity by 2000, and 10GW of ‘good quality’ CHP by 2010. However, despite these targets, and the environmental benefits that CHP can provide, the technology has suffered from years of neglect in government policy, and there have only been relatively small increases in its use over the last few years. The 2005 target was missed, and it is certain that, barring a massive shift in attitudes and policies, the 2010 target will be too – in 2006, capacity was around 5.5GW and Defra currently estimates that despite there being the potential for 13.6GW by 2010, only around 7.5GW of capacity will actually be on-line by then (BERR 2007a, Defra 2007e). As with renewables, many CHP projects are relatively small-scale and most are connected to distribution lines. Larger plants are used to provide heat and power for industrial sites, but smaller plants can be used to provide all energy needs (heat, electricity and cooling) at the district level. Such plants are particularly suited to high-density urban populations (Royal Commission on Environmental Pollution 2007). New CHP projects face a number of hurdles among the most important of which is the capital cost of constructing the heat (and, where applicable, cooling) networks to distribute their output. The potential income from Levy Exemption Certificates (LECs) under the Climate Change Levy and ROCs (if the project uses renewable fuel) does not necessarily provide enough financial certainty to overcome the risk presented by these initial high construction costs. In addition, the cost of generating electricity in CHP plants is higher than that of conventional generation, which puts CHP at a disadvantage in a competitive electricity market. Although operators get some revenue from the heat they also supply, historically this has not been enough to offset the higher costs. It is clear from the 2007 White Paper and 2006 Climate Change Programme that the government recognises the potential importance of CHP at the industrial and district levels, but it has so far failed to produce policy measures to ensure that the technology is taken up more widely. The White Paper outlined the support schemes which could apply to CHP. These include the availability of some Enhanced Capital Allowances for equipment, exclusion from the CCL, partial exemption from business rates and recognition of the carbon savings associated with CHP within the UK’s allocation of EU ETS permits. However, these mechanisms are clearly not enough to overcome the barriers faced by CHP, in part because of the short lived nature of the CCL scheme, or uncertainty about their future prospects. Similarly, the requirement in building regulations to ‘consider’ the implementation of CHP schemes has proved ineffective because it is merely advisory. One way forward would be to establish some form of heat obligation on energy suppliers to require them to provide a certain proportion of heat from CHP
Connecting the future: the UK’s renewable energy strategy Sustainable energy systems 51 plants to their customers. However, the design and implementation of such a scheme would be complex and possibly subject to the same flaws as the RO. An alternative would be to provide heat suppliers with a guaranteed payment per unit of heat for a specified period of time (ie a feed-in tariff). The level of support could vary according to the technology used (ie whether renewable or not) and the level of carbon savings it was able to achieve. Yet another approach would be to encourage energy suppliers to adopt a more adventurous approach to energy services than has been the case so far under the EEC. This appears to be occurring with the shift in emphasis towards ESCOs in the plans for the Supplier Obligation (see page 32), but the fact that this is only set to run until 2020 may undermine the prospects for projects entailing relatively high capital expenditure, which would include CHP. The Zero Carbon Homes initiative appears to offer more hope for the sector, given that it is whole developments that need to qualify as zero carbon rather than individual homes. However, this initiative will not contribute to the 2010 CHP target, and so the sector risks further stagnation in the intervening years. 4.2.2 Biomass strategy The use of biomass and other renewables to provide heat services has declined in the UK since the mid 1990s (Figure 4.5). In 2006 Defra established the Bioenergy Capital Grants Scheme to encourage the deployment of biomassfuelled CHP plants (Defra 2006a). However, the available funds are a modest £10–15 million spread over five years, which means that the impact the scheme produces will be overshadowed by the continuing emphasis on the use of biomass fuels in co-firing. Understandably, therefore, hopes were raised when the 2007 White Paper was accompanied by a long-awaited biomass strategy intended to encourage the creation of sustainable supply chains for biomass crops and increase the use of biomass in UK energy production. Two years earlier, the government’s Biomass Task Force had estimated that, if encouraged by policies to stimulate the creation of supply chains and to reward the provision of low-carbon heat, biomass could provide around 3% of UK heat demand by 2010, and 7% by 2015, reducing annual emissions by 0.9MtC and 2.7MtC respectively (Biomass Task Force 2005). However, when finally published, the biomass strategy came as a disappointment – particularly in terms of its lack of commitment to driving a biomass heat sector, given its recognition that, in comparison with other biomass applications, heat provision is the most cost effective way of reducing carbon emissions. The strategy estimates that existing UK biomass resources could save emissions of between 4.88MtC and 5.1MtC a year if used to supply both electricity and heat (see Table 4.5), and an additional 1.88MtCe through avoiding emissions from landfill. Yet it offers no new measures to encourage greater use of biomass in the energy system, neither does it establish any targets for the future use of biomass in the UK (apart from biofuels) (DTI, DfT, Defra 2007).
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Connecting the Future - Greenpeace UK

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