European Cogeneration Review - United Kingdom

Transcription

1 European Cogeneration Review - United Kingdom November 2012 European Cogeneration Review is a series of country reports covering the latest developments, current situation and prospects of cogeneration in Europe. It tracks the many regulatory, socio-economic and political changes that are affecting the market for cogeneration, taking into account the impacts of European legislation and its implementation at the national level.

2 European Cogeneration Review - A series of Country Reports on Cogeneration in European countries Country: United Kingdom Issue: November 2012 Price: 99, free for members of COG Europe COG Europe thanks the Combined Heat and Power Association (CHPA) in the United Kingdom for their valuable contribution to this report. This report is based on the best publicly available information at the time of publishing. The views expressed here are those of the authors and do not necessarily reflect the official policy or positions of those who contributed to it. COG Europe may not be held responsible for the use, to which information contained in this publication may be put, or for any errors which, despite careful preparation and checking, may appear. COG Europe COG Europe Avenue des Arts B-1210 Brussels, Belgium Tel: Fax: info@cogeneurope.eu Web: Order information for this and future country reports is available on COG Europe website.

3 Contents 1 Executive Summary Statistics General Statistics CHP Fuel Mix CHP by application CHP support schemes CHP market prospects...8 Annex I: Stakeholders and useful links...9 Annex II: CHP Support Schemes Explained...10 a. Enhanced Capital Allowances (ECAs)...10 b. Climate Change Levy (CCL) exemption...10 c. Carbon Price Support (CPS)...11 d. Business rates exemption...11 e. VAT reduction...12 f. Renewable Obligation Certificates (ROCs)...12 g. Renewable Heat Incentive (RHI)...13 h. Feed-in-tariff (FiT)...14 i. Community Energy Savings Programme (CESP)...14 j. Green Deal...15 Annex III: Additional Potential for Cost-effective CHP in 2010 and

4 1 Executive Summary The present priorities of energy policy in the United Kingdom include cutting carbon emissions and ensuring a secure and sustainable energy supply at the least cost possible. The Department for Energy and Climate Change has so far introduced a number of measures and instruments to achieve the country s ambitious long-term decarbonisation goal (80% GHG reduction by 2050) while fostering competition in the energy markets. Energy efficiency is considered as one of the most cost-effective and readily available sources of energy security and decarbonisation, as outlined in the UK Department of Energy and Climate Change recent strategic document The Energy Efficiency Opportunity in the UK 1. Since its 2007 Energy White Paper, the UK Government has highlighted the need to promote low-carbon power and heat. Many pieces of legislation have been proposed and implemented, sometimes conflicting with one another and certainly leading to a very complex legislative environment. Despite the UK government s continuous high level commitment to support cogeneration, the level of installed CHP capacity has stayed flat over the past five years. The combined impacts of a liberalised energy market, over-capacity in generation and an unfavourable spark spread, have contributed to a sluggish CHP market over the past few years. Government action in the wider energy and climate arena has contributed significant policy uncertainty to the mix. Nevertheless, some hints of recovery can be observed, as several policy developments show real promise to drive further growth in the sector. Notably, the introduction of the Renewable Heat Incentive is expected to increase the use of cogeneration and renewable fuels. Also noteworthy is the expected growth in the CHP market segment below 10 MWe. 1 DECC, November The Energy Efficiency Strategy: The Energy Efficiency Opportunity in the UK. Retrieved from: 1

5 2 Statistics 2.1 General Statistics According to the Digest of UK Energy Statistics of 2012, the UK CHP market has been stable for the past few years, following a steeper increase in the years leading to In 2011, the installed electrical capacity stood at 6.11 GWe, 1% higher than the previous year. The generated electricity amounted to 27 TWh, representing 7.7% of the total generated power in the UK. CHP heat production has also been stable between 2006 and 2011, after a gradual decrease attributed to falling heat to power ratios of CHP power plants in the 1990s (see Tables 1 and Figures 1 and 2). Table 1: CHP statistics ( ) 2 Year CHP electricity CHP electrical capacity (GWe) CHP generation (TWh) CHP share in total electricity generation (%) CHP heat CHP heat capacity (GWth) CHP heat production (TWh) RES CHP Share of RES in generated CHP electricity and heat (%) Figure 1: CHP power generation TWh % 60% 50% 40% 30% 20% 10% 0% Year CHP electricity generation (left axis) Load factor (right axis) Share of total UK power output (right axis) 2 DECC, Digest of United Kingdom Energy Statistics 2012 Chapter 7: Combined Heat and Power. Retrieved from: 3 DECC, Digest of United Kingdom energy statistics 2011: long term trends. Retrieved from: 2

6 Figure 2: CHP heat generation Most of the installed capacity is attributed to large CHP, above 10 MWe. However, the market for small and micro-chp, below 1 MWe, is more dynamic, having increased by 18% in 2011 compared to 2010 (see Figure 3). Figure 3: CHP installations by capacity and size range ( ) 5 Installed electrical capacity (GWe) Less than 100 kwe 100 kwe to 999 kwe 1 MWe to 9.9 Mwe 10 MWe and above Year 6 4 Ibidem 3 5 Ibidem 2 3

7 2.2 CHP Fuel Mix Seventy per cent of generated electricity and heat in CHP installations is based on gas (see Figure 4). The majority of the CHP installed electrical capacity is based on gas turbine technology. The combined cycle gas turbines representing the largest employed technology (66%), followed by reciprocating engines and open cycle gas turbines. This explains the strong link between gas prices and CHP capacity and generation growth in the UK. Renewables accounted for 6% of the fuels used in CHP installations in 2011, registering a twofold increase compared to Most of the growth was due to an increase in the use of sewage gas and wood fuels. With the recent introduction of the Renewable Heat Incentive, which will complement the Renewable Obligation on the power sector, the share of renewable fuels in cogenerated heat and electricity is expected to further increase. Figure 4: Fuel used in generated heat and electricity from CHP ( ) Gross CHP fuel used (TWh) Other fuels Natural gas Fuel oil Coal Renewable fuels Year Note: Other fuels include process by-products, coke oven gas, blast furnace gas, gas oil and refinery gas 7 Ibidem 2 4

8 2.3 CHP by application Industry Of all the UK CHP electrical capacity 90% is used in industry. The two biggest industrial sectors that use CHP are oil refineries (37%) and chemicals (31%), followed by paper, publishing and printing (7%) and food beverages and tobacco (7%). Figure 5: CHP installed capacity by sector in * Other industrial branches include: Iron and steel and non-ferrous metals, Metal products, machinery and equipment, Mineral products, sewage treatment, Textiles, clothing and footware. ** Other sectors include: agriculture, community heating, leisure, landfill and incineration Buildings Given the Government s commitment to improve the energy efficiency of buildings, the number and capacity of CHP units installed in buildings has been increasing recently. CHP used in the commercial, residential and public sectors represented 81% of the total number of CHP units installed in 2011, up by 8% since last year. The installed capacity amounted to MWe, corresponding to a 4% increase compared to Although several district heating (DH) networks are operating in Southampton, Sheffield, Nottingham and London, the UK DH market is underdeveloped. The Department of Energy and Climate Change identified that DH has the potential to provide 14% 9 of the heat demand in the UK. However, currently only 4% of buildings in the UK are connected to DH networks 10, covering 1-2% of UK s heat demand, and less than 5% of UK CHP electricity capacity is associated with DH. 8 Ibidem 2 9 POYRY & Faber Mausell, The potential and costs of district heating networks. Retrieved from: %20Heat/1467-potential-costs-district-heating-network.pdf 10 District Heating and cooling country by country survey, Euroheat&Power,

9 3 CHP support schemes The UK Government has put in place several support measures to promote highly efficient CHP, summarized in Table 2 and presented in detail in Annex II. These policies are targeting good quality CHP installations registered under the CHP Quality Assurance (CHPQA) programme. The (CHPQA) was established in order to assess CHP installations and ensure that they comply with the eligibility criteria under the EU Cogeneration Directive (2004/8/EC). Table 2: UK Legislative Framework for CHP 11 Type of measure Regulatory Framework Guaranteed Price & Premium Certificate Scheme Investment support: Fiscal Incentives & Grants Expected impact of the Energy Efficiency Directive (EED) implementation Description CHP Quality Assurance Programme Favourable treatment under Phase II of the EU Emissions Trading Scheme Changes to the licensing regime, benefiting smaller generators Ensuring fair and easy access to the grid for smaller generators Addressing the administrative burdens for smaller generators and offering advice/help for using distributed generation A small scale Feed-in-Tariff of 12.5 p/kwh is available for micro-chp installations under 2 KWe Eligibility to Renewable Heat Incentive for all renewable CHP plants 12 Eligibility for Renewables Obligation Certificates (ROCs) for renewable CHP schemes 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 Preferential treatment under the Business Rates for certain Good Quality CHP schemes Reduced VAT on the installation of micro-chp The Bio-energy Capital Grants Scheme Eligibility for micro-chp up to 50kW in the Green Deal District heating (which in the UK usually incorporates CHP), is fundable under the Community Energy Saving Programme (CESP). This scheme is being replaced in 2013 by the Energy Company Obligation (ECO). The government is not expected to significantly adjust its national legislation to ensure compliance with the EED. The majority of the binding measures in the EED are covered by policies already in place. The Energy Efficiency Deployment Office (EEDO) will lead the implementation of the EED. 11 DECC, Meeting energy demand: Combined Heat and Power. Retrieved from: 12 Note that the Renewable Heat Incentive is also available for any CHP, including those installations not registered under the CHPQA scheme. 6

10 One important milestone has been the recognition of the heat sector as key to decarbonizing the energy sector. DECC has developed a heat load map of England, aimed at promoting CHP and DH development. The Scottish Government is also developing a heat map. Furthermore, the UK is the first country to introduce a financial support scheme for renewable heat. CHP heat fuelled by renewables can benefit from the Renewable Heat Incentive (RHI). One concern is that the tariffs have been calculated based on heat only technologies and no separate CHP band is being proposed. As a result it is unknown if support under the RHI will drive renewable CHP in the UK or not. From April 2013, the Renewable Obligation and the RHI for CHP will work in an integrated way. The Renewable Obligation Certificate (ROC) up-lift for CHP will be cancelled to account for the RHI premium, with a transitional period planned for The presence of twin incentives is intended to drive maximum efficiency. There are also some concerns regarding the reduction of support for renewable electricity coming from CHP, which raises the issue of gaining a better understanding of the interactions between the two incentive schemes. Another potential driver is the Government s commitment to energy efficiency in buildings and the recent Green Deal and Energy Company Obligation schemes. The Green Deal introduces private sector loans for households and businesses adopting energy efficiency improvements. Micro-CHP up to 50kW is eligible under the Green Deal. As a result of campaigning by leading industry associations, district heating (which in the UK usually incorporates CHP), is fundable under the Community Energy Savings Programme (to be replaced by the ECO from 2013). District heating is more likely to access a small sub-section of this programme, the value of which is estimated at 190 million. In addition, micro-chp is also supported through a Feed in Tariff, guaranteed for 10 years. While only 406 installations have been certified under the FiT scheme 13, the Green Deal financing model may create more demand for micro-chp. CHP is has also been promoted through the Climate Change Levy Exemption on fuel inputs and outputs. From April 2013 the Levy Exemption Certificates (LECs) awarded for CHP electricity exported to the grid will be cancelled and replaced with the Carbon Price Support (CPS) tax. While CHP will benefit from reduced CPS tax rates, it might not be enough to compensate for the loss in profitability caused by the Levy Exemption removal. The UK Government is currently in the process of delivering its third electricity market liberalisation legislative package. The forthcoming Electricity Market Reform (EMR) 14 is likely to have an important impact on the CHP market in the UK, through the review of some of the existing measures and a number of new instruments. The four main elements of the EMR are: Carbon Price Support (CPS), Contract for Difference Feed in Tariff, Capacity Market, and Emissions Performance Standard. 13 Ofgem, FiT installations Report. Retrieved from: al+report_extpriv&reportvisibility=1&reportcategory=9 14 The latest updates can be found here: CHPA seminar on the EMR: 7

11 4 CHP market prospects While the UK is the sixth largest CHP market in Europe, the country has a significant untapped potential (see Annex III). The most important barriers to the CHP sector are a consequence of unfavourable electricity and gas prices and policy uncertainty. In a 2007 report on CHP potential in the UK commissioned by the Government s Department of Environment, Food and Rural Affairs, the economic potential identified for additional generated CHP was 81 TWh of electricity and 94 TWh of heat in Additional installed capacity could reach 10.6 GWe and 12.5 GWth by The sectors presenting the highest potential were the medium to low temperature industry, refineries, LNG and the building sector (see Table 8 in Annex III). In its recent 2012 Strategic Framework for Low Carbon Heat in the UK study 15, the Department of Energy and Climate Change identified an impressive technical potential for 24 GWe of industrial CHP by 2020.Furthermore, in its attempt to create a strategy for decarbonising heat, DECC is also promoting heat networks, which are thought to have to have technical potential for distributing up to 50% of the UK s demand for heat 16. The UK CHP market is heavily relying on the spark spread development and medium term trend. Over the past few years the volatility of prices have had a negative impact on the viability of CHP, as the spark spread has been on a downward trend. The energy and climate policy environment is becoming more favourable, with the Government s commitment to promoting the CHP sector. The greatest challenge is balancing support for CHP while achieving a more liberalised electricity market structure. It is difficult to know at this stage what impact the upcoming Energy Bill will have on CHP projects until it is published, but in its current form will likely have a negative impact on market liquidity. 15 DECC, March, The Future of heating: A Strategic Framework for Low Carbon Heat in the UK. Retrieved from: 16 Ibidem 13. 8

12 Annex I: Stakeholders and useful links Relevant legislation and tools Energy Act 2011 document Summary Energy Act 2011 Enhanced Capital Allowances Climate Change Levy (CCL) exemption Renewables obligation (RO) DECC CHP Focus UK CHP Development Map Government Department of Energy and Climate Change Energy Efficiency Deployment Office (EEDO) Department for Environment, Food and Rural Affairs HM Treasury responsible for the Enhanced Capital Allowances Certification Schemes CHPQA programme The Microgeneration Certification Scheme responsible for eligibility requirements for the FiT and RHI Regulatory Body & TSO Office of Gas and Electricity Markets Regulator (OFGEM) Non-governmental organisations National Grid Company (NG) The Carbon Trust (CT) Energy Savings Trust (EST) Industry Combined Heat & Power Association (CHPA) 9

13 Annex II: CHP Support Schemes Explained a. Enhanced Capital Allowances (ECAs) Good Quality CHP plants are eligible to apply for Enhanced Capital Allowances (ECAs), a fiscal benefit which consists of a provision for accelerated depreciation of investment. The ECAs enable a business to write off 100% of investment in new CHP plants in the first year after investment. According to the UK CHP association, CHPA, compared to a gradual depreciation over a 15-year period, the ECA is estimated to reduce the overall capital expenditures by 7-10%. There are however a couple of limitations. Firstly, companies whose core business is power generation are not eligible under this scheme. ECAs are only available to industrial companies that invest in CHP. While it is possible for utilities to create a separate business holding CHP assets, only one UK utility has exercised this choice. Secondly, ECA for district heating pipes are only available on the volume of insulation within a pipe and does not include the cost of the entire pipe network. Moreover, ECAs are NOT available for CHP plants which claim either the Renewable Obligation Certificates (See below) or the Renewable Heat Incentive (RHI) benefits. b. Climate Change Levy (CCL) exemption The Climate Change Levy (CCL) is a tax charged on the supply of energy products used in the non-domestic sector. The rates levels are based on the energy content of each commodity and were fixed at: Table 3 Carbon Change Levy rates 17 Commodity Rate from 1 Apr 2012 Rate from 1 Apr 2013 Electricity (pence/kwh) Gas in Great Britain (pence/kwh) Gas in Northern Ireland (pence/kwh) LPG (pence/kg) Any other taxable commodity (e.g. coal) (pence/kg) CHP installations registered with the CHPQA may benefit from an exemption from paying the levy on both input fuels and outputs (heat, steam, air, water that has been heated or cooled and electricity). An additional registration with HM Revenues and Customs is required when the operator qualifies for an exemption only for part of the outputs. In the case of electricity outputs, three categories are defined: onsite supply, direct supply to consumers and indirect supply through a third party. For onsite and direct supply of CHP electricity, installations are exempt from the tax. For electricity supplied indirectly, via a third 17 HMRC, Retrieved from: howcontent&id=hmce_prod1_031183&propertytype=document 10

14 party, CHP plants can apply for CHP Levy Exemption Certificates (CHP LECs) which demonstrate the amount of electricity supplied from good quality CHP sources. These LECs can be sold to energy suppliers who have liabilities under the CCL regime. Small scale CHP operators do not generally apply for LECs due to the administrative complexity associated with the system. As a result small scale CHP plants are often sized to meet onsite power demand and deliberately avoid export to the grid. From April 2013 the CCL exemption will end for indirectly supplied CHP power. Utilities will still be allowed to use the CHP LECs acquired before April 2013 until March In addition, effective from April 2012, fossil fuels used in a CHP plant to generate electricity would be liable to pay the Carbon Price Support Rate that will replace the fossil fuel CCL and fuel duty (see next section). c. Carbon Price Support (CPS) Starting in April 2013, the UK government will reform the CCL and replace it with the Carbon Price Support (CPS) - a new tax on the carbon content of fossil fuels used to generate electricity. The CPS will contribute to meeting the Carbon Price Floor, which is expected to start at 15.5/tCO2 in 2013 and gradually increase to 30/tCO2 in 2020 and 70/tCO2 in CHP plants will be required to pay a reduced CPS charge on the share of the fuel used to generate electricity. The share of the fuel used to produce non-electricity outputs that are good quality will be exempt from the levy. CHP installations of 2 MW or below will also be exempt from the tax. The applicable tax rates are: Table 4: Carbon Price Support rates and indicative rates Commodity CPS rate CPS rate Indicative CPS rate Indicative CPS rate Gas (pence/kwh) 0,091 0,175 0,221 0,272 LPG (pence/kg) 1,46 2,822 3,564 4,393 Coal ( /GJ) 0, , , ,33063 Fuel oil; other heavy oil; rebated light oil ( /liter) 0, , , ,04687 Gas oil; rebated bioblend ( /liter) 0, , , ,04112 d. Business rates exemption Good Quality CHP benefits from a preferential business rates regime. 18 HMRC, Carbon Price Floor: Further Legislative Provisions and Future rates. Retrieved from: 11

15 e. VAT reduction Domestic micro-chp installations (smaller than 50 kwe and 45 kwth) benefit from a reduced VAT of 5% (down from 20%). f. Renewable Obligation Certificates (ROCs) In the UK, electricity suppliers have to comply with a renewable energy quota obligation scheme by acquiring Renewable Obligation Certificates (ROCs). Three complimentary obligations are applicable in England and Wales, Scotland and Northern Ireland. Renewable electricity generated by CHP plants is eligible for ROCs: Table 5: Allocated ROCs for CHP until April Type of power plant ROCs/MWh Dedicated Biomass with CHP 2 Co-firing of Biomass with CHP 1 Dedicated Energy Crops with CHP 2 Co-firing of Energy Crop with CHP 1 Energy from Waste with CHP 1 Advanced gasification/pyrolysis with CHP 2 Until April 2013, the Renewable Obligation included a CHP up-lift of 0.5 ROCs/MWh to be added on top of the standard ROCs allocation (e.g. a biomass CHP plant receives 2 ROCs/MWh, which represents an additional 0.5 ROCs/MWh of renewable electricity generated in CHP mode on top of a biomass power only generator). The UK government decided that it would not offer above 2.0 ROCs for any renewable power output, which prevented bioliquid and biogas CHP from receiving an uplift for operating as CHP rather than in power only mode. More recently, energy from waste (EfW) CHP plants have also become eligible and can receive 1 ROCs/ MWh. However, an assumption is made that only 50% of the waste burned is organic matter and, therefore, renewable. As a result, in reality an EfW CHP plant receives 0.5 ROCs/MWh. The government intends to end the Renewable Obligation Scheme in 2017 to be replaced with a new Feed in Tariff for renewables and low carbon generation. The Government decided that the CHP up-lift for new stations on and after April 2015 will be done through a combination of ROCs and Renewable Heat Incentive (RHI). Between 2013 and 2015, CHP operators will be able to choose between ROCs only or ROCs plus RHI: 19 DECC, CHP Incentives: Renewable Obligation. Retrieved from: 12

16 Table 6: ROC scheme between Technology Dedicated biomass with CHP Standard co-firing of biomass with CHP Standard co-firing of energy crops with CHP Biomass conversions with CHP Enhanced (mid-range and highrange) co-firing of biomass with CHP Level of ROC support for stations accrediting or additional capacity added 1 April March April March ROCs/MWh or 1.5 ROCs/MWh plus RHI 0.8 ROCs/MWh or 0.3 ROCs/MWh plus RHI (proposed) 1.3 ROCs/MWh or 0.8 ROCs/MWh plus RHI (proposed) 1.5 ROCs/MWh or 1 ROCs/MWh plus RHI Prevailing RO support ROCs/MWh uplift or Prevailing RO support plus RHI 1.5 ROCs/MWh plus RHI (1.4 ROCs/MWh plus RHI in 2016/2017) 0.5 ROCs/MWh plus RHI 1ROC/MWh plus RHI 1 ROCs/MWh plus RHI Prevailing RO support plus RHI Ofgem, the UK energy regulator, is setting the buy-out price and mutualisation ceilings for each compliance period of the RO. For the period, obligated parties will need to pay 38.69/ROC in case of non-compliance. During the period, buy-out price is set at 40.71/ROC. Currently, the ROCs are traded at approx. 40/ROC 22. g. Renewable Heat Incentive (RHI) The RHI Scheme is a legislative proposal aiming to promote the deployment of renewable and low carbon heat, which has an estimated potential of 72 TWh in Biomass fuelled CHP plants, installed after 15 July 2009, are eligible under this scheme, which is designed to start synchronising with the Renewable Obligation Scheme from April 2013 (see table 7). Tariff levels vary with installed heat capacity: 20 DECC, Government response to the consultation on proposals for the levels of banded support under the Renewable Obligation for the period and the Renewable Obligation Order Retrieved from: 21 Mid-range co-firing (50-85 biomass co-firing in a unit) received 0.6 ROCs/MWh; high-range co-firing (85-100% biomass cofiring in a unit) received 0.7 ROCs/Mwh in 2013/14 and 0.9 ROCs/MWh from 2014/

17 Table 7: RHI support for CHP installations 23 Tariff name Tariff rate (pence/kwh) Small commercial biomass Tier 1: 7.9 (<200 kwth) Tier 2: 2.0 Medium commercial biomass ( kwth) Tier 1: 4.9 Tier 2: 2.0 Support calculation Metering. Tier 1 applies annually up to the Tier Break, Tier 2 above the Tier Break. The Tier Break is: installed capacity x 1,314 peak load hours, i.e.: kwth x 1,314 Large commercial biomass ( 1000 kwth) 1.0 Metering Currently, the RHI is payable for any useful heat generated as long as it is not used for electricity generation or used to produce renewable energy (e.g. to heat an anaerobic digester). A CHP plant which is not certified under the CHPQA, may claim RHI support. h. Feed-in-tariff (FiT) The FiT scheme was launched on 1 st April 2010 as part of the Energy Act 2008 and provides financial support for small scale generation below 5 MW 24. The scheme includes a domestic scale micro-chp (below 2 kwe) pilot which will cover up to 30,000 units for 10 years. Biogas CHP units of up to 5MW are also eligible. Micro-CHP units taking part in the pilot receive 11 p/kwh 25. An additional bonus of 3.2 p/kwh is offered to exported electricity. Subject to state aid approval, these rates will increase to 12.5 p/kwh and 4.5 p/kwh respectively. Biogas based CHP of 5 MW, or below, benefit from a FiT between p/kwh depending on electrical capacity and the year when eligibility was established. According to Ofgem s latest statistics from April 2012, 361 installations, accounting for 365 kw, were registered in the scheme. This represents less than 1% of all installations funded by the FiT scheme. i. Community Energy Savings Programme (CESP) The Community Energy Savings Programme (CESP) has been running since September 2009 and will be replaced by the Energy Company Obligation from The CESP requires the major gas and electricity suppliers and certain electricity generators (known as the Big 6 ) to meet a carbon emissions reduction target, based on the number of costumers. This target can be met through the implementation of energy efficiency measures in buildings, including measures relating to District Heating. Out of the measures installed to date under the CESP, DECC, Renewable Heat Incentive Scheme Q&A. Retrieved from: policy/renewableheat/1393-rhi-faqs.pdf 24 A detailed table of FiT values can be found here: 25 Pence per MWh at 2012/2013 values, to be indexed to inflation. 14

18 were new connections to district heating, upgrading of district heating networks or installations of district heating meters for individual dwellings 26. CESP will be replaced by the Energy Company Obligation (ECO) starting in The ECO will include three separate programmes: Carbon Emission Reduction Target, Carbon Savings Community Target and Home Heating Cost Reduction Target. District heating will be eligible under the Carbon Savings Community Target programme, which aims to reduce carbon emissions through insulation measures and district heating connections among low income households 27. j. Green Deal The Green Deal, which will come into force at the end of January 2013, is a financing mechanism for energy efficiency investments. The Green Deal introduces private sector loans for households and businesses adopting energy efficiency improvements. The loan repayments will be financed through a charge on the electricity meter. Green Deal installations must produce energy bill savings greater or equal to the repayment charges, known as the golden rule. Micro-CHP up to 50kW is eligible under the Green Deal. 26 Ofgem, September Community Energy Savings Programme update. Retrieved from: _WEB.pdf 27 Ofgem, Energy Company Obligation. Retrieved from: 15

19 Annex III: Additional Potential for Cost-effective CHP in 2010 and 2015 In 2007, the UK Department for Environment, Food and Rural Affairs (Defra) published a report on the potential for additional (newly installed) CHP by 2010 and 2015, in line with the 2004 CHP Directive. Table 8 presents the main results broken down by sector. Table 8 Additional potential for cost-effective CHP by sector in 2010 and Year Group Capacities (GW) Delivered Energy (TWh) Electricity Heat Electricity Heat 2010 Medium to low temperature industry High temperature industry Other industry (refineries and LNG) Buildings District Heating Total Medium to low temperature industry High temperature industry Other industry (refineries and LNG) Buildings District Heating Total Important to note: A recent DECC report, published in March 2012, estimates a technical potential for additional industrial CHP of 24 GWe, corresponding to 150 TWh of generated electricity. This figure needs to be treated with a grain of caution, given that it may not be cost effective or an optimal decarbonisation pathway according to the report Defra, Analysis of the UK Potential for Combined Heat and Power. Retrieved from: ential-report.pdf More information also available via European Commission website: 29 Ibidem

20 About COG Europe: COG Europe is the European association for the promotion of cogeneration. Its principal goal is to work towards the wider use of cogeneration in Europe for a sustainable energy future. We represent 70 organisations which are National COG Associations, manufacturers, users, utilities and service companies. Currently around 100,000 Europeans are employed in the cogeneration sector. To achieve this goal, COG Europe is working at the EU level and with Member States to develop sustainable energy policies and remove unnecessary barriers to its implementation. More information on About cogeneration: Cogeneration (also known as CHP or Combined Heat and Power) is the is the most efficient way to deliver heating, cooling and electricity. It is based on the simultaneous production of electricity and thermal energy, both of which are used. 11% of Europe s electricity and associated heat requirements today are produced using this proven energy efficiency principle. The estimated growth potential for cogeneration is a further GWe which will lead to an improved environment and greater economic competitiveness in Europe. Cogeneration units can be found in different sizes and applications: industry, households and tertiary sector and spans applications with capacities ranging from below 1kw to hundreds of Megawatts. It is a highly efficient energy solution that delivers energy savings and substantial reductions in CO 2 emissions. When seriously supported, as in Denmark, CHP has the potential to increase the energy production and transformation system overall efficiency from a bare 33% (EU average) up to 65%. Realising the potential of cogeneration in Europe will contribute significantly to reaching the strategic climate and energy goals, such as security of supply, energy efficiency and reduction of emissions. COG Europe Avenue des Arts B-1210 Brussels, Belgium Tel: Fax: info@cogeneurope.eu Web: Order information for this and future country reports is available on COG Europe website 17