UK CHP Climate
CHP has obvious potential economic and environmental benefits, however Facts and Figures
shows that CHP schemes of any scale do not dominate their respective markets.
The reasons for this are complex but can be put down to economic, regulatory and institutional
barriers which exist in the present day market. CHP, although a well understood and mature
field in principal, has struggled to make an impact on the (until recently) rigid energy
industry and well established conventional means of producing heat and power.
Whether these barriers loosen up in the future is largely down to how the market will change in
view of the recent restructuring currently occurring within the industry, affecting factors
such as fuel prices, government incentives and the attitude of the large
players in the industry.
The following pages describe briefly the main barriers to and incentives for the use of CHP in the UK.
BARRIERS
Volatility in the energy market, not least due to the ongoing restructuring of the electricity
industry(ref.1), has encouraged short-term priorities by investors. CHP schemes often
require longer term investment due to the following factors :
CHP schemes are capital intensive compared
with conventional forms of heating. This is especially true of district heating schemes where
construction of infrastructures necessary for transport of heat is very costly, but is also
true of smaller schemes where the initial cost of a boiler requires less capital.
CHP maintenance costs are high (
specialist engineering expertise).
Compared to purchasing and installing
a boiler, CHP has longer lead time between decision to invest and plant commissioning due to
scheme appraisal, plant sizing and other negotiations such as tariff structures.
Tariff structures are at present unpredictable and current trends are not favourable to potential CHP users :
Uncertainty in long term prices
of fuel and electricity means that cost benefits of CHP cannot be guaranteed. Low electricity
prices due to large companies competing for a share in the new open market have lessened CHP’s
economic superiority.
The recent ‘dash for gas’ has lead
to steadily increasing gas prices, increasing this affect.
Further uncertainties for the
prospective CHP user are due to electricity tariffs no longer being published but negotiated with the supplier.
Tensions within the industry between
development of centralised and decentralised power production can mean tariffs for surplus
cogenerated electricity sold to the grid are unduly low and tariffs for back up power supplies to cogenerator are severe.
The Netherlands, Denmark and Finland(ref.2) have successfully developed the widespread use of cogeneration
via government promotion of the technology and inspiring the electricity industry to play a
key role. The UK, while encouraging the use of CHP in some ways ( see incentives and opportunities )
has opted for a freer market and discouraged cogenerated in the following ways :
No obligation to energy efficiency in the government’s privatisation proposals.
Reduction in the ‘fossil fuel levy’ reduced the advantage CHP had from its exemption.
Majority of CHP schemes, because fueled by natural gas or oil, can’t be included under NFFO or SRO.
Non-cooperation of major institutions towards CHP can lead to deterrents such as high costs of pool membership ( for large sellers of
surplus electricity), delays and difficulty in getting grid connected and complex authorisation and licensing procedures.
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INCENTIVES/OPPORTUNITIES
The following general points favour investment in cogeneration and should mean that interest in
cogeneration can only increase :
Increased environmental awareness within government
and industry.
Electricity industry has opened up
supply business to competition which should put downward pressure on installation and maintenance costs of CHP schemes.
An increasing awareness of energy/cash savings in general.
much old boiler plant currently needs replacing, making CHP more viable as capital investment necessary anyway.
Management effort required to install CHP been reduced by emergence of companies offering turnkey management packages.
More specific incentives to occur recently are :
Government target of 5000 MWe set for year 2000 ( present figure is 4000 MWe )
Other government backed promotions(ref.3). e.g. Energy Efficiency Office’s Best Practise Programme (especially small-scale projects) and Green House programs.
Level at which generation license is required has been raised to 100 MWe.
Level at which supply license is required has been raised to 500 kWe.
Electricity used on-site no longer needs to be sold to the Pool due to net trading, thus exempting more CHP users from the fossil fuel levy.
REFERENCES
1. http://www.uow.edu.au/arts/sts/srussell/electricity1990s.html
- A detailed text on the influence of the electricity market on CHP and other barriers to CHP in UK.
2. http://www.energy.rochester.edu/cogen_europe/summary.htm
- A summary of general barriers to CHP in Europe.
3. http://www.energy.rochester.edu/uk/chpstrategy.htm
- A breakdown of the government’s CHP strategy for 2000 and beyond.
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