Low-Carbon London. Martin Powell Mayor s Advisor for Environment. 1 What kind of City

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1 Low-Carbon London Martin Powell Mayor s Advisor for Environment 1 What kind of City 1

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4 2 One Obelisk 6 July

5 Evolution

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7 Session 5: London Focus Peter Bishop, London Development Agency 7

8 3 Going Green Appendix: 60% CO2 reduction by Today 45.1m 44.3m Baseline projection 51.0m Profile of national targets and aspirations (against 1990) Proposed London reductions to achieve 450ppm stabilisation Carbon Dioxide Emissions (MtCO 2 ) % 10 year target (2016) = 20% 20% 25% 30% 600 million tonne CO 2 budget to 2025 Target for London = 60% 60% (vs 2000)

9 Homes Energy Efficiency Programme 1.2m homes treated by 2015 At least 2,000 jobs creation potential with a Retrofit Academy to deliver that supply 1000 homes trialed 10 easy measures homes demonstrating the business model 2010/ ,0000 homes demonstrate financed model (next 2-3 years) - large-scale, financed, Pay As You Save model C02 savings of 7 million tonne per annum possible by 2025 Significant funding streams are available from utilities and government but are highly fragmented, so outcomes are compromised Total investment requirement in most likely case of around 5-7 billion Building Energy Efficiency Programme It is a cost neutral means to reduce energy bills and carbon footprint of your buildings Energy service companies (ESCOs) guarantee a set level of energy savings - therefore financial saving - over a period of years This guarantees a future income stream to fund investment in improvements Insulation Building management technologies Cooling equipment Low carbon heating If all municipal buildings, schools, universities and hospitals were retrofitted, could save 1m tonnes CO2 and represents 2% of London s CO2 emissions 9

10 >50 organisations are in the BEEP pipeline Early engagement Preliminary discussions Internal approvals BEEP Preparation Uni of East London LB Waltham Forest 22s Uni of Cambridge Boroughs, Unis & NHS Other buyers Non-London buyers Delegated agency Green500 Unique combination of carbon management service plus performance based annual awards Focus is on continuous, practical improvement in the carbon footprint of the organisation (not goods/ services supplied) Set a target, agree a plan, implement the plan, annual assessment 10

11 Better Buildings Partnership Comprising major commercial property owners Commits members to remove existing barriers Leases Agents Valuation Carbon benchmarks for all members on their London portfolios Annual public awards by the Mayor for reaching the agreed benchmark Decentralised energy Targeting 25% of London s energy supply from DE by 2025 Total potential investment c bn Estimated payback period of 7-10 years CO2 emissions savings of up to m tonnes p.a Three new areas of focus through LDA Decentralised Energy Delivery Team London-wide energy masterplanning (2-year programme) Part-financing for specific projects 11

12 Barking a type 3 project: Heat sourced from Barking Power Station Combined cycle gas turbine plant (CCGT) 1,000MWe from 5 gas turbines and two steam turbines 400MWth of heat is wasted Benefits Potential to supply > 120,000 homes with their space heating and hot water requirements Could save > 96,000 tonnes of CO2 per annum 12

13 Low Carbon Zones 10 Zones across London who have signed up to reduce their carbon emissions by 20.12% by 2012 This is an area based approach that uses communities to integrate HEEP, BEEP, DE, Waste. Waste 2b of 12b London s energy consumption could be delivered through energy from waste 3-year, 84m London Waste and Recycling Board fund-142 bids ranging from 5k to 10m; first disbursements expected September

14 Transport Bike hire scheme May 2010; 12 cycling superhighways by 2012 Full hybrid conversion of 8,000 vehicle bus fleet LED traffic light conversion underway; street lights? Securitising Underground electricity use? Electric Vehicle Delivery Plan launched June 2009 Own fleet: Delivery Plan Autumn 2009, start procurement early 2010 (1,000+ ultra low carbon vehicles) International EV procurement initiative with Clinton Foundation Local environment 10,000 new street trees Air quality action plan by Summer Range of urban realm improvements (Exhibition Road, shared space, etc) 10% increase in central London green space would stabilise temperatures over the next century New London Plan including Green Grid extension, green roofs, further protection for green space 14

15 Building on London s strengths Carbon trading London the dominant player in a small but iconic market. Highly mobile; others are targeting it 39% of Clean Development Mechanism Market 80% of EU ETS futures and Options Contracts traded in London Finance Big opportunity for finance sector to create new structures and financing mechanisms for Retrofit, Waste, DE, Transport Business services Law, design, engineering, etc. with significant export potential R&D/ academia London as academic hub, R&D less competitive than perhaps should be The benefits of these initiatives will combine with those of the existing Mayoral initiatives, growth in London Impact of recommended projects on London s GVA (annual), jobs (annual) and level of investment (overall to 2025). Estimated impact of recommended projects on Mayor s carbon reduction target 16, J obs 14,000 12,000 10,000 8,000 6,000 4,000 GVA ( million) million 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 M tco MtCO2 9.4 Mt 4.2 Mt 3.9 Mt 5 Mt 4 Mt 2,000 0 Jobs GVA 2,000 1,000 0 Investment Retrofit financing mechanism Data centre clusters Low carbon index on FTSE/AIM Procurement options for London Target Other identified actions and projects Expected from LCC priority projects Required national contribution Potential from LCC priority projects Mayor's Plan Early stage project underwrite National Centre for Carbon Measurement Emissions Management tool Carbon management for infrastructure project Low carbon innovation clusters Source: Ernst & Young 30 15

16 London Green Fund Illustration of End Result London Green Fund would allow capital recycling on an agreed basis whilst giving a broad commitment level to each initiative the sophistication of this will depend upon the timing for each Fund launch Retrofit Fund Investors Retrofit Fund Commitments Retrofit Fund Transport Climate Programme Fund Investors London Green Holding Fund Climate Programme Fund Commitments DE to recycle JESSICA Splitting investors between climate change fund and Initiative-specific funds may be necessary to optimise capital attraction so that investors are able to compartmentalise risk Initiative Waste Fund 3 Fund to recycle LWARB Waste Fund Investors Waste Fund Commitments Project 1 Project 2 Project 3 Project Investors Project 1 Project 2 Project 3 Banks, Green funds, Pension Funds Project level investment could be sought to maximise funds raised however, this might lead to over-complication and should be considered by the project managers Financing provided either on a project by project basis or on a programme wide basis Banks, Green funds, Pension Funds 4 The next big Obelisk 16

17 Population growth Population growth

18 Population growth Population growth 18

19 Create an internationally recognised growth pole in East London to impact the regional and UK economy. A showcase, forming the strongest working cluster of clean tech uses and live demonstration of how green industry can be an integral part of the modern city 19

20 GREEN ENTERPRISE DISTRICT CONCEPT PLAN 20

21 Addressing behaviour around Energy Efficiency leads to addressing Energy Supply Hard to Picture a KWh or a Tonne of Carbon 5 The Final Challenge 21

22 80 Litres Summary London has set some challenging targets A mix of Interventions is required to deliver these targets Varying models of delivery is essential for success Cities have the most to do and the most to gain All cities are different but the challenges are the same We can learn by replicating what is successful in cities and adjusting the approach to ensure the right delivery mechanism to enable action at scale! 22

23 End of Part 1 martinpowell@london.gov.uk District Heating as part of the UK Heat Strategy 23

24 Heat and Energy Saving Strategy Consultation includes a new focus on district heating in suitable communities and barriers to its development encouragement of combined heat and power and better use of surplus heat the consultation paper is concerned about a whole house approach to energy efficiency, but as part of that we also have to think of community and larger scale solutions The Potential for District Heating The potential for district heating is significant although its maximum potential is necessarily dependent upon economic assumptions previous research by DEFRA (2007) recognised potential for positive economic returns in certain types of area recent research commissioned by DECC has found that areas with a heat density above 3000KW / Km2 could provide returns on investment of 6% or above the potential is up to 20% of overall UK heat demand, although that is sensitive to economic assumptions 24

25 Potential Carbon Savings from District Heating Initial research indicates that if all properties with economic potential for district heating were connected to networks, using heat generated from large natural gas CHP stations, - a saving of around 9.8Mt CO2 is possible (if biomass, more than double that) by comparison, individual ground source heat pumps providing the same heat would save between 2 and 3 Mt CO2 per annum at current grid carbon levels Potential to Tackle Fuel poverty If the barriers presented by the high up front costs and risks of district heating can be overcome, evidence from existing schemes indicates that district heating has the potential to save energy costs and contribute to the eradication of fuel poverty. 25

26 Converting the potential Carbon and Energy Cost Saving of District Heating into Reality An important element to realising the potential of district heating is ensuring that local authorities have the tools they need and understand its potential Ministers from the Department of Energy & Climate Change and Communities and Local Government will host a Local Authority Summit on community energy and heating to engage with central government policy makers on emerging thinking to identify how local authorities can realise the benefits of generating and saving energy at community level Engaging Stakeholders More Widely At the same time, we need to engage stakeholders more widely. The Government therefore proposes to convene a forum to monitor heat markets and identify necessary action. Representation from Industry consumer interests regulators The forum will look at all aspects of heat supply, but as its first task will be asked to provide advice on consumer and other issues on district heating and to facilitate an industry code. 26

27 What the Public Sector Can Do The results of the current consultation, the Local Authority Summit and the Heat Market Forum will tell us more, but public sector involvement may include promoting the production of heat mapping data (location and density of heat demand) assisting in the assembly of public sector anchor loads planning policies helping to realise the potential for district heating (see Supplement to PPS 1) Building the Capacity Building the capacity for district heating has to involve energy providers, investors, local communities, other stakeholders, central and local government working together, so as to gain a clear and practical understanding of the scope and potential for district heating the means of realising that potential the barriers together with the role of all stakeholders in reducing them 27

28 The Economic and Regulatory Environment for Decentralised Heat Systems in London London s Carbon Emissions The Role of Decentralised Energy A saving of 7 million tonnes of CO2 by 2025 is achievable through changes to London s energy supply. Of that, some 53% is achievable through the introduction of locally produced energy Local heat and power networks - 31% Energy from biomass and waste - 15% Micro-generation - 7% 28

29 The Role of Decentralised Energy The potential for decentralised energy (heat and power) in London is substantial. A UK Government report identified a potential of 2026 MW for cogeneration linked to community heating The Mayor s vision is that 25% of London s energy demand (heat and power) can be met by decentralised energy by 2025 Meeting this target will require combined heat and power plants with electrical capacity of 1800 MW and a heat output of approx MW The UK Government s Targets On recommendation of the Climate Change Committee (an independent body set up under the UK Climate Change Act 2008 to advise Government on emission targets) the UK Government has committed itself to an 80% reduction in CO2 on 1990 levels by Also a legally binding EU target of 15% of the UK s energy from renewable sources by 2020, including 12% of heat demand met from renewables. In order to meet these targets (and in particular for heat) district heating / decentralised energy schemes must play a substantial role nationally, as well as in London. The Government therefore needs a clear policy on regulation / support for district / community energy (cogen) schemes which should support London s targets for decentralised energy. 29

30 The Government s Vision for Decentralised Energy The Government has consulted over the UK heat and energy strategy and the result is due to be published later this year The strategy will define the Government s view on the role of decentralised energy but initial indications are promising Preliminary research we [UK Government] have conducted has found that areas [in the UK] with a heat density above 3000 kw/km2 could provide returns on investment of 6% or above [and] would account for about 5.5 million properties-about 20% of overall UK heat demand A report commissioned by the Government also recognises the potential for large decentralised energy schemes, particularly utilising waste heat from power stations District Heating Networks 30

31 What is Government doing to Support DE? Economic Barriers to DE and District Heat Networks What is Government doing to Support DE? Institutional Barriers to DE and District Heat Networks 31

32 Development of City-wide Decentralised Energy Developing the networks Small scale least efficient Source: IEA Report 8DHC Development of City-wide Decentralised Energy Developing the networks District scale more efficient Source: IEA Report 8DHC

33 Development of City-wide Decentralised Energy Developing the networks Large scale most efficient Source: IEA Report 8DHC Rationale for Intervention The strategy and targets behind LDA intervention Targets, timeframe and budget The Mayor s CCAP sets a target of 2.2 million tonnes p.a. of CO 2 emissions to be saved by 2025 through decentralised energy The EMP and DE Programme objective over the next 3.5 years will be to facilitate the implementation of distributed energy projects with the capacity to deliver 5% of this, resulting in CO 2 savings of 110,000 tonnes per annum. The LDA s involvement will allow the private sector to deliver the remainder of the savings This will be delivered through 10 projects across a 3.5 year timeframe. The public sector investment could leverage 4bn of private sector investment and create an entire industry. The private sector has the greatest potential for meeting the 2025 decentralised energy supply target set out in the Mayor's CCAP. However, this will require delivery of strategically optimal scale projects. To identify these projects, and the scale and partners required to deliver them, a reliable and centrally accessible database of essential information is required. This will also serve as an incentive for private developers and utilities to take on the projects identified through the Energy Master Plan for London. The EMP Programme will assist boroughs and private developers to identify the potential schemes, assess their technical and financial feasibility and deliverability, and prove they are a viable means of reducing carbon emission. The DDE team currently aim to deliver 5% of the mayor s CCAP target CO2 savings, or 110,000 tonnes of CO2 p.a. by 2025, and propose that the EMP and DE Programme will catalyse the DE market and facilitate the delivery of the remaining 72% of private sector projects. At the current average project size of 11,000 tonnes, this will require 10 projects to be delivered. This is the proposed target for projects delivered in the Energy Master Plan Programme by the end of LDA Projects, 5% Existing CHP Optimisation, 23% Private Sector Projects, 72% 33

34 Packages Costs Phase 1 Duration Resource PMO Phase Manager PMO Officer Consultant Snr PMO Officer Consultant Jnr Legal total days Cost Consultant LDA months days days days days days days A Capacity Building 6 PTE , ,250 B Heat Mapping 2 FTE ,700 20,000 4,700 C Political Support 6 PTE , ,300 D Strategies / Policies 12 PTE , ,500 E Budget Commitment 6 PTE , ,850 TOTAL ,600 20,000 27, ,800 12,000 13,200 8,800 6, Phase 2 F Technical Feasibilty 2 FTE ,250 55,000 11,250 G Delivery Route 6 PTE ,750 20,000 9, ,000 75,000 21, ,800 11,400 45,000 2,800 30, Phase 3 H Financial Plan 4 FTE ,550 50,000 13,550 I Procurement 12 PTE ,900 50,400 27,500 J Legal 12 PTE ,750 50,400 20, , ,800 61, ,800 24, ,000 13,600 48, Legal Contract per Borough 3,000 3, , , ,000 LDA Costs Consultant Costs No. Packages Total Cost Total Costs One Borough All 33 1 Borough All 33 1 Borough All 33 Phase 1 A - E 33 1,240,800 Phase 1 47,600 1,570,800 Phase 1 37,600 1,240,800 13, ,000 Phase 2 - F ,500 Phase 2 96,000 3,168,000 Phase 2 48,500 1,600,500 47,500 1,567,500 Phase 2 - G ,500 Phase 3 212,200 7,002,600 Phase 3 61,400 2,026, ,800 4,976,400 Phase 3 - H ,350 Legal Fee Contract 3,000 99,000 Legal Contract 3,000 99,000 Phase 3 - I , ,800 11,840, ,500 4,867, ,300 7,071,900 Phase 3 - J ,500 Legal Contract 33 99,000 3,021,650 34

35 Carbon Savings The Business as Usual (BaU) scenario illustrates the indicative carbon savings that could be achieved if no intervention takes place and London Boroughs have no incentive to take action on implementing decentralised energy to achieve carbon savings. The Energy Master Plan (EMP) Intervention scenario illustrates the potential carbon savings that could be achieved through the LDA's intervention and delivery of the EMP Programme to catalyse and facilitate energy masterplanning and decentralised energy in London to achieve significant carbon savings. These assumptions are based on the findings of the GLA's 'Review of Energy Policies in the London Plan' carried out by London South Bank University in 2006 and again in The figure on the left shows how the carbon savings significantly increased with the introduction of additional capacity and resource in the GLA planning team ( ). It is assumed that a similar increase in carbon will be achieved through the intervention of LDA resources to increase capacity across London through the boroughs Energy Map The screenshot on the left provides an indicative view of the Energy Master Plan for London website. The Site will be hosted and managed by the DDE team at the LDA. It is built on an existing information platform (LDA & HCA Brownfield Site Database), avoiding development costs of around 100k and making use of systems for boroughs to upload data (from heat maps,feasibility studies, energy consumption figures, and new developments or retrofit programmes. The GIS data layers have been collected by the GLA - Community Heating Study Update and will form the basis of the EMP for London. 35

36 A2 Map Budget LDA Budget The total funding for the Energy Masterplanning Programme is 3,000,000. This is part of a wider Decentralised Energy Programme focusing on delivery of technical and commercial feasibility of strategically important projects. The wider budget is 5,252,000. The additional work-streams are: 1m CHP Feasibility 1m Techno-Economic 0.3m Commercial Energy Masterplanning Implementation Costs No. Packages Total Cost Phase 1 A - E 33 1,240,800 Phase 2 - F ,500 Phase 2 - G ,500 Phase 3 - H ,350 Phase 3 - I ,000 Phase 3 - J ,500 Legal Contract 33 99,000 3,021,650 Borough Match Funding The Boroughs will be expected to provide match funding for carrying out heat mapping in Phase 1 and the feasibility study in Phase 2. The LDA will provide 10,000 per borough towards the cost of heat mapping, and 27,500 per borough towards the cost of project feasibility studies. Boroughs will be expected to use the Methodology developed by the LDA for these studies, and to upload their findings to the Energy Master Plan for London website upon completion. Each borough receiving support from this programme will be expected to sign a Memorandum of Understanding with the LDA, setting out their current situation (marked against the Project Trajectory), a set of agreed actions, and an agreed list of outcomes or outputs. Contracts will be drawn up from an LDA template for each service provision where funding is provided. 36

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39 The London Thames Gateway Heat Network (LTGHN) Project Barking Power Station Power Station Combined cycle gas turbine plant (CCGT) 1,000MWe from 5 gas turbines and two steam turbines 46% efficient (400MWth of heat into Thames) Addition of a further 400MWe planned Owners have committed to supplying 100MWth heat from the new extension The Benefits Potential to supply > 120,000 homes with their space heating and hot water requirements Could save 100,000 tonnes of CO2 per annum 39

40 Environmental Benefits Carbon content of heat (at 117g/kWhe) 140 Carbon content of heat (g/kwh) Electricity Gas boilers Micro CHP Solar and gas boilers Heat pump - CoP 2.5 Small gasengine Large gasengine Barking CCGT SELCHP Biomass CHP Risks & Mitigation Main risks: Potential impacts due to Olympics and Olympic Route Network. People may not want to connect due to potential high costs. Requires careful financial planning to ensure debt levels and revenues are in the required ranges. Heat loads do not develop as forecasted impacting upon revenues. Lack of availability of funding and leverage. Failure to establish and maintain high standard of heat supply service. Mitigated by proper system design and operated by a dedicated organisation. 40

41 The Barriers There are significant barriers to the development of decentralised energy systems on the scale needed by London s target or to meet the potential that the UK Government has seen High sunk costs Little scope for modular construction to reduce risk of stranded investment Certainty, timing and longevity of heat loads Price competition from other energy sources UK energy consumer culture Regulatory uncertainty Distortion of Government support caused by the renewables agenda Existing Government Support Systems There are existing Government support systems for decentralised energy For renewably fuelled cogen and CHP waste to energy plants, Renewable Obligation Certificates (the UK system of financial support for renewable electricity) Accelerated taxation relief on capital expenditure Relief from Climate Change Levy (a carbon tax system) Development planning policies and building regulations that require property developers to use cogen opportunities But these measures do not address the real barriers and the financial support is mainly directed at renewable technologies that can discourage the development of heat networks 41

42 Proposed Government Support Systems In July 2009 the Government published a White Paper The UK Low Carbon Transition Plan which set out a national strategy for climate change and energy. The specific strategy for heat and energy saving is not due until later this year, but with the White Paper were published some new support programmes together with some proposed earlier this year Feed in Tariff Renewable Heat Incentive Changes to the Renewables Order (support system) to accelerate its effects The Community Energy Support Programme (CESP) The main benefit is to renewable cogen. The Feed in Tariff only supports low carbon heat to 50kW and CESP is unlikely to help large scale schemes significantly How Government Support Systems Work Current Government support systems for decentralised energy are principally supportive of renewable energy technologies. Low carbon heat and power systems are marginalised. The effect is that while the Renewables Obligation and prospectively, the Feed in Tariff and the Renewable Heat Incentive will be designed to create secure revenue streams to attract investment, the same is not true of gas fired cogen systems which can make an immediate and potentially large scale impact on carbon targets The effect will be to retard the attainment of the renewable targets for heat, as well as slowing the potential for cogeneration to make its contribution to the carbon targets. The Government needs to focus on heat networks to meet both the carbon and renewable heat challenge. 42

43 Removing The Barriers Financial Support A primary objective in Government support policies should be to break down barriers to investment in heat networks The networks provide the means of distributing renewable heat, so if they are not built the renewable heat agenda is damaged Gas fired cogen is currently often the most economic and risk controllable heat source, so networks will more easily be built if gas fired systems are supported to the extent necessary to attract capital investment Heat networks are important both for the renewable and carbon agenda to support them in one context but not the other misses the point The message is to treat all technology based targets with caution, lest they slow up the attainment of the one target that matters the carbon green house gas emissions target Removing Barriers Public and Private Collaboration Apart from financial barriers, there are risk barriers which the public sector can manage or reduce Many of the larger heat loads are at public premises Planning and other consent powers Availability of highway space and facilities for infrastructure Access to sources of soft finance Changing public attitudes to buying heat as a commodity Promoting know-how and investment 43

44 Tariff and Risk In principle, bulk generation and supply of heat should follow similar economics to other utilities involving expensive sunk infrastructure Long term secure income streams Low operational and investment risk Lower returns than higher risk industries. Currently, while the returns may follow those of other utilities, the risks do not and discourage investment. Assuming a heat scheme is planned on a discount rate of, say, 6% the risks have to be reduced to justify it So, for the tariff to be marketable, the risk has to be reduced; or if the risk remains high, there will be far fewer schemes. Heat and Regulation The sale and distribution of heat is not regulated like other utilities which tend to have complicated regulatory systems to protect consumers and promote competition The industry wants to keep it unregulated and Government does not want to intervene more than strictly necessary, but risk and revenue issues may force it down the regulatory path The need for long term supply contracts for consumers gives rise to consumer protection concerns Engineering and output standards are of public interest Domestic consumers expect utilities to be regulated The need for property and network owners to enforce a right of connection to a heat system But regulating price and costs might discourage investment Is competition from alternative sources of heat enough to protect consumers? The question is undecided. 44

45 Heat Tariffs Tariffs for heat tend to follow a set structure. In the UK, piped gas is available in most built environments; or if not there may be other fuel comparators A usual pricing structure involves a fixed or semi fixed element to cover fixed and non energy costs Plus a variable element normally indexed to current gas prices The industry may provide welcome re-assurance to consumers by publishing or agreeing a pricing structure as a long term guarantee of value But the effect is to constrain price innovation and competition And if that occurs, government / regulator price regulation would follow The Government and industry must address the issue. Tariffs Capacity Charge The Customer will pay an annual Capacity Charge based on the agreed Connection Flow according to the following table (sample). The Capacity Charge will be adjusted annually according to the UK Wholesale Price Index. Customer Connection Flow Annual Capacity Charge Category V m3/h /year 45

46 Tariffs Energy Charge The Customer will pay an Energy Charge based on the metered consumption (MWh) and on the Energy Unit Cost ( /MWh). The Energy Unit Cost ( /MWh) will depend on the fuels used for the heat production, on the WPI and on the carbon emission costs, according to the following formula (sample). The price adjustment will take place every three months. where E = Energy Unit Cost (EUC) to be applied E0 summer = The initial EUC for April-September: 15 /MWh E0 winter = The initial EUC for October-March: 30 /MWh T49 = WPI PA = Weighted average price of fuels used for DH production PO = Actual cost of EU ETS for the DH Co, /MWh Tariffs Further terms on pricing VAT will be added to Capacity Charge and Energy Charge according to prevailing regulations. If further taxes or payments are imposed on DH production and supply or other changes in the regulative environment cause additional costs which will not be covered by the tariff indexations, the DH Co has the right to charge such cost increases to the Customer. If the Customer s average monthly cooling remains lower than 15 oc, the DH CO has the right to calculate the monthly amount of heat supplied based on a 15 oc temperature difference between flow and return. Other UK specific specialities. 46

47 General Terms and Conditions for Heat Supply List of Contents Concluding the District Heat Purchase and Supply Agreement Heat distribution to customers and quality of supply Connection capacity/flow Seller s pipelines and equipment Customer s district heat and building heating equipment Heat metering and billing Payment deposit Transfer of agreement Heat supply interruption due to the customer Delayed connection and commencement of heat supply Default in heat supply Liquidated damages Termination of the agreement Changing of the terms and prices Dispute resolution Abbreviations and definitions Electricity Regulation for Decentralised Energy The electricity regulatory and market system in the UK is designed for large players of whom 6 dominate the electricity supply market Electricity is an important component in the economics of cogen schemes and operators used an exemption mechanism in the UK system to by-pass the complex market system dominated by the big players, to gain a more economic cost / revenue basis by selling to their customers outside the market system The option will not work well in the future Schemes are planned to be bigger and the exemption mechanism will not work for them The Citiworks case gives competing electricity suppliers access to all wires, however small the system Cogen operators need a new system which recognises their cost and environmental advantages and allows them to play effectively in the big market The Government and the regulator (Ofgem) have introduced a new system which allows for that and is designed to enable smaller cogen operators to charge and collect a similar price for their power as the large players and not incur unnecessary cost 47

48 Electricity Tariffs for Decentralised Energy The prices for the supply of electricity in the UK are not regulated, the consumer being protected through price competition between suppliers However, the economics of smaller decentralised energy plants is different from large centralised electricity generation Higher unit costs and no comparable economies of scale But a direct generator / consumer retail relationship, lowering costs Mostly no use made of the UK electricity transmission system and only local use of distribution system Ability to spread costs between electricity and heat supply Low and zero carbon electricity becoming a premuim product The existing market system left cogen operators with the higher unit costs and cost burdens of the market system, while not properly reflecting the cost advantages A New Market Solution The new market solution is designed to reflect the value / cost advantages of decentralised energy Cogen operators can be licensed and grow their business to any size, but need not join the complex/expensive/risky market systems They will only be charged short haul charges for the distribution of their electricity to customers Their direct generator / consumer retail relationship is preserved with its cost advantages only the power they don t sell directly to their customers is bought / sold in the market system The large fully licensed electricity suppliers will provide supplier services to cogen operators to facilitate the system The challenge is to implement the new arrangement effectively 48

49 The End! 49